Disparity between hypothetical and actual willingness to pay in a biodiversity conservation context. Dr. Michael Christie Institute of Rural Sciences University of Wales Aberystwyth

2 Overview Overview of CV criterion validity tests Case study: CV study of the value of Red Kite conservation in Wales Conclusions

3 Biodiversity valuation Over the past 20 years or so, there have been numerous studies that have attempted to value biodiversity, for an overview, see –Nunes and van der Bergh (2001); –OECD (2001) But how reliable are the findings from such studies?

4 Are WTP values elicited in contingent valuation studies valid ? Does the study follow NOAA guidelines? Undertake validity tests Content validity: Does the survey accurately reflect the good? Construct validity: Model WTP responses against respondent characteristics. Criterion validity: Compare hypothetical WTP values with actual WTP values.

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6 Criterion validity tests Generally, Hypothetical WTP > Actual WTP Mostly based on laboratory experiments. Very few address environmental goods. A truly rigorous criteron test would use: –Field tests –An environmental good

7 Research Aims: Using the case study of Red Kite conservation in Wales, the research will aim to : –Test H 0 : H WTP = A WTP Since empirical (lab) studies suggest : H WTP > A WTP –We will also aim to identify reasons for any disparity between hypothetical and actual WTP. Therefore, we will compare: The size of bids between treatments Stated intentions to pay and actual payments

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9 Red Kites in Wales The Red Kite used to be common in Wales. But following 400 year persecution, only 6 Kites left in Wales in Recent government- funded effort has re-established Kite populations.

10 Red Kites in Wales However, government funding stopped in 1997, and the ‘Welsh Kite Trust’ charity was formed to continue conservation efforts. Objectives of WKT: –research Kite’s requirements –nest protection –raise public awareness of Kites –provide information about Kites However, limited funds meant that the plight of the Kite is not now secure!

11 Experimental Design Two treatments –Hypothetical WTP: to simulate CV studies –Actual WTP: actual cash donations to WKT Comparisons between treatments: –Bid levels positive bids only positive + zero bids –Stated ‘intentions’ to pay with actual payment

12 Comparison of hypothetical and actual WTP for Kite conservation Donation (positive and genuine zero bids) Donation (positive bids only) TreatmentHypothetical donation Actual donation Hypothetical donation Actual donation Mean WTP Median WTP SD n T-testt = P = t = p = Mann-Whitney UM-W U = P = M-W U = p = 0.06

13 Comparison of hypothetical and actual WTP for Kite conservation HWTP(pos+zero) > AWTP(pos+zero) HWTPpos = AWTPpos This suggests that: –actual bid levels were similar between treatments, –but there were more zero bids in the actual treatment compared to hypothetical treatment.

14 Stated intention to pay versus actual payment made between treatments Hypothetical treatmentActual treatment ResponseIntention to pay (HI) Hypothetical donation (HD) Intention to pay (AI) Actual donation (AD) Yes, would pay (%) Maybe pay (%) No, wouldn't pay (%) N Chi-square: Probability:  2 = p =  2 = p = 0.000

15 Stated intention to pay versus actual payment made between treatments HI = AI : No difference in % intending to pay between treatments HD ≠ AD : Difference in % stating an amount between treatments HI = HD : No difference in % stating an intention to pay and stating a hypothetical amount. AI ≠ AD : Difference in % stating an intention to pay and stating an actual amount.

16 Summary of key results Hypothetical WTP was 3 times greater that actual WTP: consistent with other criterion validity experiments However, –The value of bids were consistent between treatments –People over-stated intention to pay in hypothetical treatment.

17 Why did respondents over-stated intention to pay in hypothetical treatment? Design issues in this experiment relating to how people could make actual donations? OR Inherent problem in CV that stimulates more people to express a WTP amount that they would in a real situation? –‘Warm glow’ effect –‘Cheap talk’ aims to help make respondents more aware of implications of stating a WTP amount, but may need more emphasis on initially determining whether people would actually pay at all!

18 What constraints or limitations would you expect to face regarding the use of preference and attitude information for actual policy formulation or implementation? Reliability: although much effort has been undertaken to improve reliability, criterion validity test consistently show over- estimation. Policy makers, however, do appear to be embracing the results from valuations (albeit with caution).

19 Thank you for your interest Christie M (2007) An examination of the disparity between hypothetical and actual willingness to pay for Red Kite conservation using the contingent valuation method. Canadian Journal of Agricultural Economics 55,

20 Tobit model of Hypothetical and Real WTP for Red Kite conservation VariableHypoActualDescription Everseen 3.67*** (1.14) 5.28*** (1.42) Dummy for whether the respondent has ever seen a Kite: 1 = yes, 0 = no LiveWales (1.13) (1.25) Dummy for whether the respondent lives in Wales: 1 = yes, 0 = no. Gender (1.15) (1.26) Gender of respondent: Male = 1, Female = 0 Income ( ) ( ) Income of respondent Member 3.95*** (1.16) 5.36*** (1.36) Dummy for membership of Environmental organisation: 1 = yes, 0 = no. Constant 0.01 (1.44) -5.20*** (1.71 LL function N 9380 LM test for tobit ANOVA base fit measure