The Case for Diminishing Marginal Existence Values

Abstract

This study addresses the debate over sensitivity of existence values as measured by contingent valuation to the scope of the good. We reconcile much of the debate within one theoretical model. If marginal WTP for existence goods is diminishing, then a given study that tested for sensitivity to scope over a range for which marginal WTP is high would be more likely to detect sensitivity to scope than another similar study that focused on a range for which marginal WTP is much lower. An empirical model is developed to demonstrate this point. The study finds that the existence value of remote wilderness parks are sensitive to scope, but that differences in WTP for given pro ortionate changes in scope vary over the WTP curve in a way consistent with diminishing marginal WTP...These results have significant implications for future contingent valuation work.-The Case .for Diminishing Marginal Existence Values This paper contributes to the debate over the use of contingent valuation to measure existence values. In the debates over environmental damage assessment, there has been much disagreement over the extent to which non-users of a compromised resource suffer economic damages [11, 16, 2, 5]. The sensitivity of measured existence values to changes in the size of scope of the good has been called into 'question [1, 3, 6, 14]. A number of studies have investigated the issue of insensitivity to scope [13, 4, 17, 18, 15], conducting empirical tests and proposing theoretical explanations. Much of the empirical literature focuses on whether or not existence values as estimated by CV are sensitive to scope of the existence good in question [3, 4, 5, 18]. For example in a study of migratory waterfowl deaths, Boyle et al [3] found insensitivity to scope of migratory waterfowl deaths for 2% or less of waterfowl populations, and recommended further research to investigate the measurement of the value of small changes in the provision of environmental goods. Much of the literature that interprets the implications of the debate do so in terms of the reliability of CV to measure existence values. Diamond and Hausman [7] review a number of CV studies that are not sensitive to scope and conclude that because individuals may not be able to distinguish between goods of different scope, reliability of CV estimates of existence values are suspect. In their study of the value of the 49th and 50th parks out of a system of 57 wilderness parks, McFadden and Leonard [14] conclude that CV estimates are not sensitive to scope in the case of unfamiliar and remote wilderness areas. Carson 141 reviews over 30 tests in which CV estimates are sensitive to scope and concludes that CV can produce reliable estimates in well constructed studies. Smith and Osborne [18] used a metaLanalysis of past CV studies to conclude that estimates of the values of changes in visibility are sensitive to scope, and that similar analysis could be used to determine the reliability of existence values for other goods. A number of papers have been concerned with how to devi...

External Tests of Scope and Embedding in Stated Preference Choice Experiments: An Application to Endangered Species Valuation

“…That is, along the ESA improvement dimension, preferences appear to show scope insensitivity. This result was seen in 6 of the 9 cases where scope insensitivity could not be rejected and seems to be consistent with the diminishing marginal value argument discussed by Rollins and Lyke (1998). However, the argument for diminishing marginal utility does not fully explain the other three cases of scope insensitivity.…”

“…Rollins and Lyke (1998) showed that in the context of CV, scope tests may find scope insensitivity due to diminishing marginal utility. They argue that scope tests conducted over the upper range of a public good being valued may fail to identify scope effects because the comparisons are made over the range of the good where marginal utility approaches zero.…”

“…In this application, we exploit this feature and conduct 46 evaluations that test for sensitivity to scope with respect to both the number of species whose protection is valued and the level of protection achieved for each species. Thus, we evaluate scope effects along a significant portion of the multi-dimensional utility surface, which lends itself to an evaluation of the argument for scope insensitivity being observed as a result of diminishing marginal utility made by Rollins and Lyke (1998). Bateman et al (2002) distinguish between scope tests, which measure differences in WTP resulting from a change in one argument of the utility function, and embedding tests, which measure differences in WTP resulting from a change in multiple arguments of the utility function.…”

Consistency and construction in stated WTP for health risk reductions: A novel scope-sensitivity test

“…While some studies have demonstrated scope sensitivity (e.g., Carson and Mitchell, 1993;Smith and Osborne, 1996;Carson, 1997;Smith, Zhang and Palmquist, 1999), others have not (e.g., Diamond et al 1993;Boyle et al, 1994;Schkade and Payne, 1994;Beattie et al, 1998;Hammitt and Graham, 1999), while still others show that it is possible to observe scope sensitivity and scope insensitivity within the same study (Loomis, Lockwood and DeLacey, 1993;Rollins and Lyke, 1998;Schulze et al, 1998;Giraud, Loomis and Johnson, 1999;Bateman et al, 2004;Heberlein et al, 2005 3 ). This variety of findings has given ample support to both supporters and critics of CV.…”

An adding-up test on contingent valuations of river and lake quality

“…The test is failed in all of these studies except Nunes and Schokkaert, who pass their adding-up test when they use a factor analysis to account for warm glow, and not otherwise. Other studies have designs that support an adding-up test on non-incremental parts, but the authors do not report the results (Hoevengal, 1996;Loomis and Gonzalez-Caban, 1998;Riddel and Loomis, 1998;Rollins and Lyke, 1998;Streever et al, 1998).…”