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`Been there done that': Disentangling option value effects from user heterogeneity when valuing natural resources with a use component.

Lyssenko, Nikita and Martinez-Espineira, Roberto (2009): `Been there done that': Disentangling option value effects from user heterogeneity when valuing natural resources with a use component.

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Abstract

Endogeneity bias arises in contingent valuation studies when the error term in the willingness to pay (WTP) equation is correlated with explanatory variables because observable and unobservable characteristics of the respondents affect both their WTP and the value of those variables. We correct for the endogeneity of variables that capture previous experience with the resource valued, humpback whales, and with the area of study. We consider several endogenous behavioral variables, so we apply a multivariate probit approach to jointly model them with WTP. In this case, correcting for endogeneity increases econometric efficiency and substantially corrects the bias affecting the estimated coefficients of the experience variables, by isolating the decreasing effect on option value caused by having experienced the resource. Stark differences are unveiled between the marginal effects on willingness to pay of experience of the resources in an alternative location versus experience in the location studied.

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