Considering household size in contingent valuation studies

Ahlheim, Michael and Schneider, Friedrich (2013): Considering household size in contingent valuation studies. Published in: Environmental Economics , Vol. 4, No. 1 (2013): pp. 112-123.

Abstract

In many empirical contingent valuation studies one finds that household size, i.e. the number of household members, is negatively correlated with stated household willingness to pay for the realization of environmental projects. This observation is rather puzzling because in larger households more people can benefit from an environmental improvement than in small households. Therefore, the overall benefit should be greater for larger households. A plausible explanation could be that household budgets are tighter for large families than for smaller families with the same overall family income. The fact that larger families can afford only smaller willingness to pay statements in contingent valuation surveys than smaller families with the same income and the same preferences might have consequences for the allocation of public funds whenever the realization of an environmental project is made dependent on the outcome of a contingent valuation study. This paper shows how the use of household equivalence scales for the assessment of environmental projects with the contingent valuation method can serve to reduce the discrimination of members of large families.

• Item Type: MPRA Paper
• Language: English
• Keywords: contingent valuation and household size, willingness to pay, environmental project, family income, valuation service, household equivalent scales.
• Subjects: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; H - Public Economics > H4 - Publicly Provided Goods > H43 - Project Evaluation ; Social Discount Rate; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q51 - Valuation of Environmental Effects

References

Ahlheim M. (1998). Contingent valuation and the budget constraint, Ecological Economics, 27 (2), pp. 205-211.

Ahlheim M., Frör O. (2003). Valuing the non-market production of agriculture, Agrarwirtschaft, 52 (8), pp. 356-369.

Ahlheim M., Frör O., Lehr U., Wagenhals G. and Wolf U. (2004). Contingent Valuation of Mining Land Reclamation, IAW-Report Heft, 2, pp. 33-61.

Ahlheim, M., Lehr, U. (2008). Equity and Aggregation in Environmental Valuation, unpublished discussion paper, Hohenheimer Diskussionsbeiträge Nr. 295/2008.

Aprahamian F., Chanel O., Luchini S. (2007). Modeling starting point bias as unobserved heterogeneity in contingent valuation surveys: an application to air pollution, American Journal of Agricultural Economics, 89 (2), pp. 533-547.

Balli, F., Tiezzi S. (2010). Equivalence scales, the cost of children and household consumption patterns in Italy, Review of the Economics of the Household, 8, pp. 527-549.

Barten A.P. (1964). Family Composition Prices and Expenditure Pattern. In: Hart P.E., Mills G., Whitaker J.K., Econometric Analysis for National Economic Planning, London, pp. 277-292.

Bateman I.J., Munro A. (2005). An experiment on risky choice amongst households, Economic Journal, 115 (502), pp. C176-C189.

Bateman I.J., Munro A. (2009). Household versus individual valuation: What’s the difference? Environmental and Resource Economics, 43, pp. 119-139.

Beharry-Borg N., Hensher D.A., Scarpa R. (2009). An Analytical Framework for Joint vs Separate Decisions by Couples in Choice Experiments: The Case of Coastal Water Quality in Tobago, Environmental and Resource Economics, 43, pp. 95-117.

Biewen, M. (2000). Income Inequality in Germany during the 1980s and 1990s, The Review of Income and Wealth, 46 (1), pp. 1-19.

Blundell, R. and Lewbel, A. (1991). The information content of equivalence scales, Journal of Econometrics, 50, pp. 49-68.

Bockstael N.E., Freeman III A.M. (2005). Welfare theory and valuation. In: Mäler, K.-G., Vincent, J.R. (ed), Handbook of Environmental Economics, Vol. 2: Valuing Environmental Changes, Amsterdam, pp. 517-570.

Browning, M. (1992). Children and Household Economic Behavior, Journal of Economic Literature, 30, pp. 1434-1475.

Carlsson, F., Johansson-Stenman, O., Martinsson, P. (2004). Is transport safety more valuable in the air? The Journal of Risk and Uncertainty, 28 (2), pp. 147-163.

Carson, R.T. (2012). Contingent Valuation: A Practical Alternative when Prices aren’t Available, Journal of Economic Perspectives, 26 (4), pp. 27-42.

Carson, R.T., Hanemann W.M. (2005). Contingent valuation. In: Arrow K.J., Intriligator M.D. (eds), Handbook of Mathematical Economics, Vol. 2, Amsterdam, pp. 821-936.

Chambers, C.M., Chambers, P.E., Whitehead, J.C. (1998). Contingent valuation of quasi-public goods: validity, reliability, and application to valuing a historic site, Public Finance Review, 26 (2), pp. 137-154.

Charlier, E. (2002). Equivalence Scales in an Intertemporal Setting with an Application to the Former West Germany, Review of Income and Wealth, 48 (1), pp. 99-126.

Dagum, C., Ferrari, G. (2004). Household behaviour, equivalence scales, welfare and poverty, Heidelberg.

Deaton, A., Muellbauer, J. (1980). Economics and consumer behavior, Cambridge.

Diamond, P. (1996a). Discussion of the conceptual underpinnings of the contingent valuation method by A.C. Fisher, in: Bjornstad D. Kahn J. (eds.), The contingent valuation of environmental resources: methodological issues and research needs, pp. 61-74.

Diamond, P. (1996b). Testing the internal consistency of contingent valuation surveys, Journal of Environmental Economics and Management, 30, pp. 337-347.

Diamond, P.A., Hausman, J.A. (1994). Contingent valuation: Is some number better than no number? Journal of Economic Perspectives, 8, pp. 45-64.

Dong H., Kouyate B., Cairns J., Sauerborn R. (2004). Differential willingness of household heads to pay community-based health insurance premia for themselves and other household members, Health Policy and Planning, 19 (2), pp. 120-126.

Ebert, U., Moyes, P. (2009). Household decisions and equivalence scales, Journal of Population Economics, 22, pp. 1039-1062.

Eggen, B. (2005). Die ökonomische Situation von Familien in Deutschland und in seinen Ländern, Expertise zum 7, Familienbericht der Bundesregierung, Stuttgart.

Engel, E. (1883). Der Werth des Menschen; 1. Teil: Der Kostenwerth des Menschen, Volkswirtschaftliche Zeitfragen, Vol. 37-38, pp. 1-74.

Engel, E. (1895). Die Lebenskosten belgischer Arbeiterfamilien früher und jetzt, International Statistical Institute, Bulletin, 9, pp. 1-124.

Fisher, F. (1987). Household Equivalence Scales and Interpersonal Comparisons, Review of Economic Studies, pp. 519-524.

Garrod G.D., Willis K.G. (1994). Valuing biodiversity and nature conservation at a local level, Biodiversity and Conservation, 3, pp. 555-565.

Hammitt J.K., Liu J.-T., Liu J.-L. (2001). Contingent valuation of a Taiwanese wetland, Environment and Development Economics, 6, pp. 259-268.

Harrison, G.W. (2007). Making choice studies incentive compatible, in: Kanninen, B.J. (ed.), Valuing environmental amenities using stated choice studies, A common sense approach to theory and practice, Dordrecht, pp. 67-110.

Hausman, J. (2012). Contingent Valuation: From Dubious to Hopeless, Journal of Economic Perspectives, 26 (4), pp. 43-56.

Hicks, J.R. (1939). Foundations of welfare economics, Economic Journal, 49, pp. 696-712.

Johannesson M., Johansson P.-O., O’Connor R.M. (1996). The value of private safety versus the value of public safety, Journal of Risk and Uncertainty, 13, pp. 263-275.

Kaldor, N. (1939). Welfare propositions and interpersonal comparisons of utility, Economic Journal, 49, pp. 549-552. 38. Kapteyn, A. (1994). The measurement of household cost function: revealed preference versus subjective measures,mimeo, Tilburg University.

Kapteyn, A., van Praag, B. (1976). A new approach to the construction of family equivalence scales, European Economic Review, 7, pp. 313-335.

Kling C.L., Phaneuf D.J. and Jinhua Zhao J. (2012). From Exxon to BP: Has Some Number Become Better than No Number? Journal of Economic Perspectives, 26 (4), pp. 3-26.

Lambert, P.J. (2004). Equivalence scales, horizontal equity and horizontal inequity. In: Dagum, C., Ferrari, G. (eds.), Household behaviour, equivalence scales, welfare and poverty, Heidelberg, pp. 75-84.

Lewbel, A. (1989). Household equivalence scales and welfare comparisons, Journal of Public Economics, 39, pp. 377-392.

Lindhjem H., Navrud S. (2009). Asking for Individual or Household Willingness to Pay for Environmental Goods? Environmental and Resource Economics, 43, pp. 11-29.

Liu J.-T., Hammitt J.K., Wang J.-D., Tsou M.-W. (2003). Valuation of the risk of SARS in Taiwan, NBER Working Paper 10011, Cambridge, http://www.nber.org/papers/w10011.

Loomis J.B. (2000). Vertically summing public good demand curves: an empirical comparison of economic versus political jurisdictions, Land Economics, 76 (2), pp. 312-321.

Mathews, K.E., Freeman, M.L., Desvousges, W.H. (2004). How and how much? The role of information in stated choice questionnaires. In: Kanninen B.J. (ed.), Valuing environmental amenities using stated choice studies, A common sense approach to theory and practice, Dordrecht, pp. 111-133.

McDaniels T.L., Kamlet M.S., Fischer G.W. (1992). Risk Perception and the Value of Safety, Risk Analysis, Vol. 12 (4), pp. 495-503.

Melenberg, B., van Soest, A. (1995). Semiparametric Estimation of Equivalence Scales Using Subjective Information, Tilburg University.

Missong, M. (2004). Demographisch gegliederte Nachfragesysteme und Äquivalenzskalen für Deutschland Duncker & Humblot, Berlin.

Muellbauer, J. (1974). Household composition, Engel curves and welfare comparison between households, European Economic Review, 5, pp. 103-122.

Muellbauer, J. (1977). Testing the Barten Model of Household Composition Effects and the Cost of Children, Economic Journal, 87 (347), pp. 460-487.

Muellbauer, J. (1980). The Estimation of the Prais-Houthakker Model of Equivalence Scales, Econometrica, 48 (1),pp. 153-176.

Munro A. (2009). Introduction to the special issue: Things we do and don’t understand about the household and the environment, Environmental and Resource Economics, 43, pp. 1-10.

Peluso, E., Trannoy, A. (2004). Welfare comparisons among individuals under Samuelson’s model of households. In: Dagum C., Ferrari G. (eds.), Household behaviour, equivalence scales, welfare and poverty, Heidelberg, pp. 11-27.

Pollak, R.A., Wales, T. (1979). Welfare comparisons and equivalence scales, American Economic Review, 69, pp. 216-221.

Prais, S., Houthakker, H.S. (1955). The analysis of family budgets, Cambridge University Press.

Ray, R. (1986). Demographic Variables and Equivalence Scales in a Flexible Demand System: The Case of AIDS, Applied Economics, 18 (3), pp. 265-278.

Roschewitz, A. (1999). Der monetäre Wert der Kulturlandschaft: eine Contingent-valuation Studie, Kiel.

Schröder, C. (2004). Variable Income Equivalence Scales, Physica, Heidelberg.

Schulte, J.N. (2007). Äquivalenzskalen: Identifikation und Schätzung Eine Querschnittsanalyse mit deutschen Daten Equivalence Scales: Identification and Estimation Fachbereich Wirtschaftswissenschaft, Freie Universität Berlin, 2007-08-23.

Schwarze, J. (2003). Using panel data on income satisfaction to estimate equivalence scale elasticity, Review of Income and Wealth, 49 (3), pp. 359-372.

Slemrod, J., Yitzhaki, S. (2002). Tax Avoidance, Evasion, and Administration. In: Auerbach A.J., Feldstein M. (Hrsg), Handbook of Public Economics, Vol. 3, Amsterdam, pp. 1423-1470.

Steward, M.B. (2009). The Estimation of Pensioner Equivalence Scales Using Subjective Data, The Review of Income and Wealth, 55(4), pp. 907-929.

Strand I. (2007). Public-good valuation and intra-family allocation, Environmental and Resource Economics, 38, pp. 527-543.

Takeda, Y. (2010). Equivalence scales for measuring poverty in transitional Russia: Engel’s food share method and the subjective economic well-being method, Applied Economics Letters, 17, pp. 351-355.

Van Praag, B.M.S. (1968). The Probability Space as a Model of Welfare Evaluation, Report 68.11, Econometric Institute, Erasmus University Rotterdam.

Van Praag, B.M.S. (1991). Income Inequality Between One-earner and Two-earner Households: is it Real or Artificial? Reprint series, No. 649, Econometric Institute, Erasmus University Rotterdam.

Whitehead J.C. (1991). Environmental Interest Group Behavior and Self-Selection Bias in Contingent Valuation Mail Surveys, Growth and Change, Vol. 22, pp. 10-20.

Whittington, D., Smith, V.K. (1992). Giving Respondents Time to Think in Contingent Valuation Studies: A Developing Country Application, Journal of Environmental Economics and Management, No. 22, p. 205.