The dichotomous choice approach to the contingent valuation method

Abstract

There is considerable supportive evidence that, via a hypothetical market, the Dichotomous Choice approach to the Contingent Valuation Method enables researchers to obtain a relatively accurate estimate of the aggregate benefits associated with a public good. Nevertheless, it is important that a "black-box approach" is not pursued with this technique, as wildly inaccurate estimates of the aggregate benefits may result.

A methodology is developed in this thesis which helps provide a more thoughtful approach to aggregate benefit estimation when using the Dichotomous Choice Contingent Valuation Method. Attention is especially focused on the econometric modelling stage. Issues such as the optimal bid selection, choice of appropriate model, functional form specification, diagnostic testing, and the alternative welfare measures are looked at in detail. The aggregate benefits of a proposed lake in the Mid-Canterbury region are estimated for demonstrative purposes.