An Information Theoretic Approach to Estimating Willingness to Pay for River Recreation Site Attributes

Water Resources and Economics, 2017

33 Pages Posted: 23 Jan 2012 Last revised: 22 Jan 2018

See all articles by Miguel Henry

Miguel Henry

Greylock McKinnon Associates

Ron Mittelhammer

Washington State University - Department of Agricultural and Resource Economics

John B. Loomis

Colorado State University, Fort Collins - Department of Agriculture and Resource Economics

Date Written: August 2016

Abstract

This study applies an information theoretic econometric approach in the form of a new maximum likelihood-minimum power divergence (ML-MPD) semi-parametric binary response estimator to analyze dichotomous contingent valuation data. The ML-MPD method estimates the underlying behavioral decision process leading to a person's willingness to pay for river recreation site attributes. Empirical choice probabilities, willingness to pay measures for recreation site attributes, and marginal effects of changes in some explanatory variables are estimated. For comparison purposes, a Logit model is also implemented. A Wald test of the symmetric logistic distribution underlying the Logit model is rejected at the 0.01 level in favor of the ML-MPD distribution model. Moreover, based on several goodness-of-fit measures we find that the ML-MPD is superior to the Logit model. Our results also demonstrate the potential for substantially overstating the precision of the estimates and associated inferences when the imposition of unknown structural information is not accounted explicitly for in the model. The ML-MPD model provides more intuitively reasonable and defensible results regarding the valuation of river recreation than the Logit model.

Keywords: Minimum power divergence, contingent valuation, binary response models, information theoretic econometrics, river recreation

JEL Classification: C14, C5, Q5

Suggested Citation

Henry, Miguel and Mittelhammer, Ron C. and Loomis, John B., An Information Theoretic Approach to Estimating Willingness to Pay for River Recreation Site Attributes (August 2016). Water Resources and Economics, 2017, Available at SSRN: https://ssrn.com/abstract=1989620

Miguel Henry (Contact Author)

Greylock McKinnon Associates ( email )

75 Park Plaza, 4th Floor
Boston, MA Massachusetts 02116
United States

Ron C. Mittelhammer

Washington State University - Department of Agricultural and Resource Economics ( email )

111E Hulbert Hall
Pullman, WA 99164-4741
United States

HOME PAGE: http://www.arec.wsu.edu/people/mittelha.htm

John B. Loomis

Colorado State University, Fort Collins - Department of Agriculture and Resource Economics ( email )

B310 Andrew G. Clark
Fort Collins, CO 80523
United States
970-491-2485 (Phone)

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