Journal of Environmental Economics and Management 45 (2003) 4062

Analysis of contingent valuation data with multiple bids and response options allowing respondents to express uncertainty
Anna Alberini,a,* Kevin Boyle,b and Michael Welshc
a

Department of Agricultural and Resource Economics, University of Maryland, 2200 Symons Hall, College Park, MD 20742-5535, USA b Libra Professor of Environmental Economics, University of Maine, Orono, ME, USA c Christensen Consulting, Madison, WI, USA

Abstract The NOAA Panel on Contingent Valuation advocated a no answer response option to dichotomouschoice payment questions, but did not give guidance as to how this additional response should be interpreted conceptually or analytically. We investigate the econometric modeling and response effects associated with multiple-bounded, polychotomous-choice payment question. We nd that using multiple bids with responses to each bid can increase the efciency of welfare estimates, but this approach is not free from bid design effects. Moreover, in our application, explicitly modeling uncertain responses can increase welfare estimates by over 100%. r 2003 Elsevier Science (USA). All rights reserved.

1. Introduction Contingent-valuation questions usually follow one of several possible formats. The NOAA Blue Ribbon Panel on Contingent Valuation [19] sanctioned the use of dichotomous-choice questions for eliciting nonuse values when the contingent market is framed as a referendum.1 The NOAA Panel also advocated a would not vote response option in addition to the traditional vote for/vote against options. However, no guidance was provided on the conceptual or empirical interpretation of would not vote or no answer responses. One interpretation of the no answer response is that it identies people who are not in the market for the good being valued at the particular bid amount [9]. An alternative interpretation is
*Corresponding author. E-mail address: aalberini@arec.umd.edu (A. Alberini). 1 By analogy, and the fact that the application of contingent valuation to estimate use values was not called into question, we presume that this endorsement also applies to the estimation of use values. 0095-0696/03/$ - see front matter r 2003 Elsevier Science (USA). All rights reserved. PII: S 0 0 9 5 - 0 6 9 6 ( 0 2 ) 0 0 0 1 0 - 4

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that no answer is equivalent to dont know, i.e., it identies people who have not made up their minds. Following the voting literature and excluding dont know responses from empirical analysis carries the implicit assumption that a sample-selection problem is not created. Subsequent to the NOAA Panel report, a number of investigators have implemented response formats that allow for expressions of uncertainty [18,10,21,23], and have implicitly or explicitly implied that uncertainty is another interpretation of no answer responses. Recently, Welsh and Poe [24] have devised a multiple-bounded question format with uncertain response options. The multiple-bounded format differs from single- and double-bounded formats in that it lists a panel of k bid amounts and respondents are asked whether they would pay each bid amount. The multiple bounded format renes the interval where latent willingness to pay resides and can be implemented with traditional yes/no responses to each of the k bid amounts. However, Welsh and Poe utilized polychotomous responses of denitely and probably yes, unsure, and denitely and probably no, similar to what was done with a single-bounded question by Ready et al. In this paper, we will refer the WelshPoe question as the multiple-bounded, polychotomous-choice elicitation approach. While some researchers have implied that uncertainty is one way to interpret the NOAA Panels dont know recommendation, we do not imply that uncertainty is the appropriate interpretation. Uncertainty, however, may well be one possible reason why a person might respond by checking the no-answer category. We also do not imply that the no-answer category is conceptually or methodologically the same as the three levels of uncertain response options that Welsh and Poe provided for respondents. However, given that Welsh and Poe and others have begun to use uncertain response options, there are a number of conceptual and methodological issues that must be investigated before this type of response format can be considered valid or invalid. In this paper we begin to investigate some of these issues. None of the studies cited above present a conceptual model to support the use and analysis of uncertain response options. Furthermore, Welsh and Poe and Ready et al. assume away the uncertainty revealed by the polychotomous responses through recoding all responses to yes or no. Moreover, Welsh and Poe assume that responses to the multiple bids were driven by a unique willingness to pay (WTP) for each respondent and that all information about WTP is revealed by the bid intervals where responses switch from yes to no. The purpose of this paper is three-fold. First, we investigate relaxing the restrictive assumption employed by Welsh and Poe that responses by an individual to all bids are driven by a unique WTP amount. We also propose a conceptual framework that supports the random valuation model proposed by Wang for analyzing uncertain responses and implement this model to avoid recoding uncertain responses to certain responses. Second, our experimental design administers a multiple-bounded question with the uncertainty scale used by Welsh and Poe to one sample, and a multiple-bounded question with the same bid levels where respondents simply answer yes or no to another sample. This allows us to investigate the effects of allowing people to express their uncertainty. Third, since it has been shown that the magnitude of bid amounts can affect responses to singlebounded and double-bounded questions [5,16]; we investigate whether the ordering of the panel of bids (ascending or descending) inuences responses.

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2. Why use a multiple-bounded question? Single-bounded, dichotomous-choice questions are notoriously imprecise as the only information revealed is whether WTP resides above or below the threshold provided by a single bid. Double-bounded questions reduce the range of latent WTP to one of three intervals, which increases the efciency of the resulting welfare estimates [15]. The multiple-bounded question, utilized by Welsh and Poe, increases the number of possible intervals to k 1 (where k is the number of bids shown to a respondent), which further increases the efciency of the welfare estimate. They nd that their multiple-bounded question with 13 bids (14 intervals) reduces the condence bounds around estimates of WTP by over 60% relative to a single-bounded question with the same bid design. In their econometric analysis Welsh and Poe assumed that responses to all of their 13 bids were driven by a single WTP amount. This assumption implies that the only relevant statistical information is the interval between the highest bid that a respondent answer yes to and the next higher bid. This assumption implies that a multiple-bounded question is not needed and the same information could be obtained using a payment card where respondents circle the highest amount they would pay. If the payment card has the same bid amounts as the multiplebounded question, and there are no differing response effects that arise from the two response formats, then both approaches reveal the same statistical information (this is a testable presumption). We relax Welsh and Poes restrictive assumption of complete dependence and estimate a Probit model that utilizes all k bids in the multiple-bounded panel, assuming separate draws from the distribution of WTP. We estimate the model with random effects to allow for correlation between the multiple answers provided by each respondent.2 Assuming a new draw from the distribution of WTP for each of the k bids should increase the efciency of the estimate of central tendency for WTP as the sample has been expanded by a factor of k: Both of the above efciency improvements arise from the multiple-bounded question format and are not related to the use of uncertain response options. Thus, the most obvious reason for using a multiple-bounded question is to increase the efciency of the resulting welfare estimate. Another potential advantage of the multiple-bounded format is that the range of bids may be useful when limited information is available to develop an optimal bid design [2].3 The panel of bids may also reduce the potential for respondents to anchor their responses on bid amounts as occurs in single and double-bounded questions. However, other questions arise such as whether the range of dollar amounts covered by the bids, the intervals between bids, the number of bids or other design features affect welfare estimates [20,22]. Here we investigate one potential issue, whether the order (ascending or descending) of the panel of bids affects welfare estimates, as has been done by DeShazo [11] for double-bounded questions.

2 Cameron et al. [8] also analyze data from a multiple-bounded question and utilize all k bids in the analysis, but appear to assume independence of the k responses from each individual. 3 The statistical efciency of welfare estimates can be low if most bid values are too far away from the center of the distribution, while placing all bid values too close to the center can make the researcher unable to get a good feel for the dispersion of the welfare measure [17,2].

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3. Why use uncertain response options? While there is a considerable literature regarding uncertainty in the estimation of nonmarket values, all of this literature assumes people know their preferences with certainty. Uncertainty in responses to valuation questions is presumed to arise from unknown conditions in demand (e.g., future income) or supply (e.g., future quality of the item being valued) [13]. Specically, it is assumed that people use expected utility to formulate an option price under conditions of uncertainty and it is this value that each person uses to evaluate the bids presented in valuation questions. While respondents are uncertain about future conditions, the resolution of the expected utility problem implies that respondents have values that are rm and known to them. This further implies that, when faced with a dichotomous-choice or multiple-bounded question, respondents should be able to answer without any uncertainty. There are reasons to believe that this conventional wisdom may be awed, even for market goods. Consider the purchase of a market good such as running shoes. No runner knows how the shoes will t until they actually run in them. Thus, purchase decisions are made using the best available information at the time of the sale, which may include experience running in the brand and model purchased. All uncertainty is not removed because the model design changes or the desired model may no longer be stocked. Thus, there is reason to believe that uncertainty remains at the time of the purchase that the shoes may ultimately not t well. Due to this uncertainty, a number of stores that sell running shoes will accept returns with little wear if they do not t well for the purchaser. This gives the purchaser some assurance that they will not be penalized for making a wrong decision with limited information. A similar situation arises with lemon laws to protect purchasers of motor vehicles. There is every reason to believe that more uncertainty exists in responses to stated-preference questions. Respondents do not have prior purchase experience and cannot use brand and models as signals of quality, nor do they have prior experience with the researcher that implies the valuation exercise is credible and they will have some recourse for making a bad decision. In addition, respondents are restricted to making a decision based on the scant information available in the scenario that describes the item to be valued. If we accept that people may be less sure about their responses to a stated-preference question and do not have the recourse for a bad decision as they do for some market situations, the question becomes one of how respondents answer in the face of this uncertainty. One way to consider this is to postulate that people who answer denitely yes will only do so if their utility for answering yes, plus some error factor, exceeds their utility from answering no. That is, a respondent will answer yes to any given bid amount in a single, double or multiple-bounded question if: V w; I B x > V w=o; I; or V w; I B Vw=o; I > x; 2 1

where V  is an indirect utility function, w and w=o indicate being with and without the item being valued, I is income, B is the bid and x is a negative error function (the loss from making an error). To make the point perfectly clear, it is worth stating that x is a loss function that is known

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to respondents and is not the random econometric error that arises from the empirical investigators inability to observe all relevant arguments. That is, the larger an individuals perceived error, the larger will be |x|. This error function is reduced for a market purchase by prior purchase experience with the brand and model, and recourse for a mistake in the purchase decision. Thus, x may be minuscule for the purchase of a commodity such as Cheerios and could be quite large for a stated-preference question eliciting nonuse values for an obscure environmental amenity. This conceptualization of a threshold for expressing preferences provides an interpretation of the random-valuation model Wang used to analyze response options of yes, no and dont know. As done by Wang, it is possible to parameterize x in terms of respondent characteristics. Thus, the reason for implementing uncertain response options in stated-preference questions is that the commodity description may not be complete or clear, or respondents may have insufcient experience with the item being valued to provide clear, xed responses. This we refer to as true uncertainty. Uncertain response options can also reveal what we refer to as false uncertainty. False uncertainty arises when polychotomous responses encourage people to be lazy in resolving their answers to the valuation question, provide an expectation that respondents should use all response options, or allow people to indicate some support for the item being valued even if they would not pay the specied bid. In this paper we do not address this issue of true and false uncertainty, we simply take the uncertainty expressed in respondents answers at face value in the modeling. It will be important for future investigations to address this issue of true versus false uncertainty if this question format is to have conceptual and empirical credibility. While the focus of multiple bids is on the efciency of welfare estimates, there is no reason to believe that allowing uncertain response options will affect efciency of welfare estimates. The reason for examining how people answer questions with uncertain responses is to develop a better understanding of the effects on estimates of central tendency.

4. Statistical models for valuation questions with multiple bids and polychotomous responses 4.1. Models for valuation questions with multiple bids Our rst model for multiple-bounded, polychotomous-choice responses follows Welsh and Poe for purposes of comparison. In this model, which is based on the same ve response categories as Welsh and Poe, we code denitely and probably yes as yes and any other response as no.4 The analysis of the recoded data models the intervals where respondents switch from a yes to a no response. With this model, all uncertainty in the responses is assumed away and the bid intervals where respondents switch from yes to not yes are assumed to convey all the information required to recover the distribution of respondents latent values. Clearly, this modeling approach (WelshPoe model hereafter) assumes that one value for each respondent drives responses to all bids. Thus, the sole reason for using the multiple-bounded framework is to
Welsh and Poe show that different recodings of the polychotomous responses scale value estimates up as more categories are recoded as a denite yes, and using alternative recodings of our data has the same result.
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narrow the interval within which the latent value resides. The recoding may imply that there is no need for polychotomous responses if the same statistical information would be provided by a payment-card question. Next, we estimate a Probit model that relaxes the assumption of complete dependence among the responses implicit in the WelshPoe model. Denitely and probably yes are again coded as yes, and all other responses are coded as no, which continues to assume away uncertainty in the responses. All k responses for each respondent (one for each bid in the panel) are used. The model we t is a random-effect Probit, which treats responses within an individual as correlated, but individuals as independent of one another. The empirical question is whether the Welsh and Poe model, which models the switching interval, provides welfare estimates with smaller standard errors, or does our random-effect Probit model with k responses per person provide more efcient welfare estimates? 4.2. Inclusion of uncertain response categories The next model uses the information provided by the uncertain, polychotomous responses. In these models, uncertainty is not assumed away by recoding to certain responses. Our models follow the approach introduced by Wang [23], estimating the thresholds where respondents switch from denitely yes to more uncertain response categories (probably yes, unsure and probably no) and to denitely no as the magnitude of the bid increases (random-valuation models hereafter). In the rst of these two models, the thresholds are constants, while in the second they are functions of respondent characteristics. A model where the thresholds are considered to be functions of angler characteristics could be motivated by angler heterogeneity where more experienced, dedicated anglers might have smaller range of uncertainty. A summary of the assumptions and properties of all models (WelshPoe, random-effects Probit and random-valuation) is shown in Table 1. The likelihood functions for each of the models, plus the identication conditions for the random-valuation model, are reported in an appendix.5 Another issue that merits investigation is how respondents answer payment questions with and without uncertain response categories. To answer this question, two independent samples received questionnaires that were identical in all respects, except for the possible response categories to the payment question. The rst sample received a panel of 14 bids arranged in ascending order from $1 to $2000, with response options of denitely and probably yes, unsure, and denitely and probably no. The second sample received a similar payment question, but the only two response categories were denitely yes and denitely no. To ascertain the effect of the inclusion of uncertain response categories we rst compare the distribution of responses across the questionnaire versions. Next, we estimate mean WTP and compare the welfare estimates from the two samples.
5 To estimate the models of this paper, we programmed directly the respective likelihood functions using the GAUSS Maxlik optimization module. The random-valuation model can also be estimated using an ordered Probit packaged routine, in which case estimates of the regression coefcients, standard deviation of WTP, and thresholds are obtained in the usual fashion for a discrete choice model of WTP responses, exploiting the identifying restriction discussed in the appendix. For a small number of bid amounts per individual, a random effects Probit routine is available in LIMDEP.

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Table 1 Summary of statistical models employed to analyze data from the multiple-bid questions with polychotomous responses that allow for uncertainty Model Respondents allowed to make revisions as they answer the bid panel? No, one underlying WTP for all bids Yes, one underlying WTP for each bid Correlation between response to bids for each respondent? Yes, equal to 1 (perfect correlation) Yes, correlation between any two WTP amounts is the same. Simplies to the independent Probit model if the correlation between the error terms of the WTP amounts within a person is equal to zero No, independent Is information about uncertainty used? No

WelshPoe

Random effects Probit

No

Random-valuation models I and II

Yes, one underlying WTP for each bid

Yes, to estimate thresholds that must be crossed before respondents provide certain responses

4.3. Presentation of the bids Finally, we wish to investigate whether the multiple-bounded approach can create undesirable response effects. For instance, is it possible that respondents are inuenced by the order in which the bids are presented to them? To answer this question, a third independent sample received the 14 bids arranged in descending order from $2000 to $1. The response options were, once again, denitely and probably yes, unsure, and denitely and probably no. To determine the effect of the presentation of the bid we compare the raw distribution of responses for the rst and third samples, as well as the respective welfare estimates produced by each of our econometric models.

5. The data The data used to demonstrate the econometric models and investigate the response effects were collected from a random sample of 5000 anglers who held a shing license in Maine during 1994. The sample was randomly stratied into three subsamples of 1666, 1667 and 1667 anglers; each format of the valuation question was contained in a different version of the survey. Surveys were mailed in October 1994, after the close of the 1994 open-water, shing season. Anglers were asked to value their shing for the 1994 open-water, shing season (April 1, 1994September 30, 1994).

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Of the 5000 surveys sent to anglers, the US Postal Service returned 192 as undeliverable and 2982 completed surveys were returned for an effective response rate of 60%.6 After eliciting total, trip expenses for the 1994 open-water shing season, respondents were told: We would like to know whether you would have gone open-water shing in Maine during the 1994 season if your expenditures were more than the total you just reported in Question 4. Please tell us if you would have gone shing at all at each of the increased costs listed below. (Denitely yes means I would have still gone shing at least once. Denitely no means I would not have gone shing at all.). It is very important that you respond to all dollar amounts. The amounts listed immediately following this question were $1, $5, $10, $25, $50, $75, $100, $200, $300, $400, $500, $1000, $1500 and $2000. The polychotomous response options were denitely yes, probably yes, not sure, probably no, and denitely no. The binary response version used the ascending bid panel, but only had responses of denitely yes and denitely no. We will refer to these versions as ascending bids with polychotomous responses (ABPR) and ascending bids with binary responses (ABBR). The version with the descending bid panelhereafter labeled as DBPR for descending bids with polychotomous responseswas the same as ABPR with the exception that the bids were presented in reverse order, $2000 to $1. The valuation question elicits consumer surplus experienced in the recent shing season. Formally, denote with the respondents indirect utility function as V p; y; Z; where p denotes the price per shing trip, y is income, and Z is a set of individual characteristics inuencing utility. Willingness to pay, or Hicksian surplus, is dened as WTP that solves: V p; y WTP ; Z V pc ; y; Z; 3

where p is the price per trip actually faced by the respondent in the recent shing season, and pc is the choke price. Eq. (3) suggests that respondent surplus should depend on price per trip, income, plus individual characteristics: WTP WTP p; y; Z: 4

In this paper, we model WTP directly, following the approach presented in Cameron and James [7]). The respondents answer yes to a bid if surplus exceeds the bid. The regressors in our econometric equations are average expenditure per trip (p),7 income and various demographics, and dummies capturing shing taste and habits, such as whether the angler participates in ice shing (ICEFISH) and whether the angler participates in marine shing (MARINEF). Descriptive statistics for all variables used in our statistical models are presented in Table 2.
The return rate by questionnaire version were 60.56%, 58.46% and 59.93%. The three subsamples are very similar in terms of sociodemographics, implying that any difference in the response patterns to the panel of bids should be attributed to the experimental treatment. 7 Average expenditure per trip is a different variable from the bid level. The bid level is used to compute the contributions to the likelihood, but does not appear explicitly in the expression for latent WTP. Average expenditure per trip is included in the expression for latent WTP because Eq. (4) posits that WTP may depend on this factor, among others.
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Table 2 Descriptive statistics Variable and description Sample average DBPR version ICEFISH (dummy=1 if respondent engages in ice shing) MARINEF (dummy=1 if respondent engages in marine shing) Age (years) Income (household income) (thou. $) MALE (dummy=1 if the respondent is a male) PRICE (previous seasons expenditures on shing trips, divided by price per trip) ($) 0.38 0.23 42.61 44.11 0.86 101.33 ABPR version 0.34 0.25 42.32 43.36 0.84 86.15 ABBR version 0.38 0.23 43.12 42.44 0.86 94.15

6. Results 6.1. Distribution of responses The response pattern for the ABPR version is shown in Fig. 1. Only 50 respondents (1.7% of the sample) always answered denitely yes, and 21 respondents (0.7% of the sample) always answered denitely no. Most respondents checked each response category at least once. The percentage of respondents who gave denitely yes responses is very high (92.5%) for a bid level equal to $1 and declines sharply as the bid level increases. When the additional cost per season is $2000, only 1.8% would denitely pay this amount. The percentage of denitely no responses is very low at the low bid values and rises in a regular fashion with the bid. Eightyseven percent of the respondents would denitely not pay $2000. A Pearson chi-square test easily rejects the null hypothesis that the responses are independent of the bid levels at the 1% level of signicance.8 Further examination of the data reveals that about 31.4% of the respondents checked the not sure response option at least once. This indicates that uncertainty is an important component of the response distribution, and the different modeling frameworks proposed here are relevant for analyzing these data. The percentage of respondents providing not sure responses is generally low at the lowest and highest bid amounts, and peaks at the middle amounts, where it is as high as 18.3%.9
If the choice of a response category is truly independent of the bid level, the frequencies along the rows of a contingency table crossing the bid levels against the response categories should remain approximately the same. The test P statistic is w2 nij mij 2 =mij ; where nij are the observed frequencies, and mij are the frequencies predicted by the independence model [1]. In this particular case, since all of the n respondents are confronted with the complete list of payment levels, mij npj ; where pj is the marginal probability of each response category. Here, the test is distributed as chi-square with 52 degrees of freedom. The test statistic was computed to be 16,148.51, which falls in the rejection for the null hypothesis of independence at the 1% level or better. 9 While the response data presented here suggest that people center their responses in the middle of the bid panel, Roach and Boyle [20] have shown that this centering pattern is not maintained when the bid panels is skewed to high bid amounts.
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100 90 80 70

Percent

60 50 40 30 20 10 0 $1 $5 def.no $10 $25 notsure $50 $75 $100 $200 $300 $400 def.yes $500 $1,000 $1,500 $2,000

Fig. 1. Response distribution for version ABPR.

To look for associations between the uncertainty of the response and individual characteristics, we t a multinomial logit (MNL) model, assuming that for each bid level people choose the response category that gives the highest utility. The advantage of a MNL model over Wangs random valuation model is that the former helps nd associations between respondent characteristics and the selected response categories without imposing any assumption about the ordering of the responses.10 The regressors include the bid, price of a trip, income and other individual characteristics potentially related to tastes for shing (gender, age, and dummies denoting participation in ice shing and marine shing). We nd that the probability of selecting each response category is related to the bid level, as well as to several of the angler characteristics. Wald tests imply that not sure responses should be interpreted as distinct from both the probably yes and the probably no responses. Similarly, probably yes and probably no should not be combined with the denitely responses. These results contrast with those reported in Alberini and Champ [3] and Carson et al. [9] who found that the characteristics of people who answered unsure were more similar to those who answered no than they were to people who answered yes. 6.2. Models for multiple-bounded responses The results of the alternative statistical models seeking to estimate WTP are reported in Table 3 for the ABPR version. All models assume that respondents latent values are normally distributed,
Implicit in the MNL model is the assumption that the utility level is observed with an error, that the error terms associated with each response options are independent of one another, and that they follow a standard type-I extreme value distribution.
10

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and that the welfare statistic of interest is mean WTP. All reported results for the WelshPoe model assume a switch from probably yes to not sure identies the upper and lower bounds for the latent variable. Denitely and probably yes are reclassied as yes for the Probit models. Comparing the WelshPoe model with the random-effects Probit model shows that the coefcients on MARINEF and MALE are of comparable magnitude: they differ by only 5% and 3%, respectively.11 The coefcient of income changes by about 24%: its magnitude implies that a $1000 change in household income will change mean WTP by $2.42 to $3.26. ICEFISH, age and price per trip are insignicant in the WelshPoe model, but are statistically signicant, and of greater absolute magnitude, in the random-effects Probit model. The t-statistics are generally larger in the Probit model than in the WelshPoe model, showing that employing multiple observations from each respondent (as the random-effects Probit model effectively does) more than compensates for the fact that the intervals around WTP are much broader. The estimates of s; the standard deviations of WTP are similar, in the two models. Estimated mean WTP is quite similar and only differs by 14%: $207 for the WelshPoe model and $236 in the Probit model. While Welsh and Poe found that their multiple-bounded question model increased the efciency of the welfare estimate by over 60% relative to a dichotomous-choice question, we nd that assuming that the response to each of the 14 bids is a new draw from the distribution of WTP further increases the welfare estimate by more 50% (B$15 against B$7).12 Fitting the random-effects Probit model proved to be very instructive. The coefcient of correlation between responses from the same individual, which measures the fraction of the total variance of the error terms explained by the individual-specic component of the error, is only about 0.06. This coefcient is statistically signicant, but it is so close to zero that it effectively leaves the point estimates of all coefcients and their standard errors very similar to those that are obtained by tting a Probit that treats all observations as independent (by restricting the correlation coefcient to be zero).13 Because of these ndings, we believe it is acceptable to t random-valuation models based on the assumption of independent draws, as we do next.
11 The coefcients reported in the various columns of Table 4 are the regression coefcients of WTP on the various regressors, i.e., bj @EWTP=@xj : Rather than presenting the coefcient of the bid variable, as is frequently done in much CV empirical work, we report directly (the negative of) its reciprocal, s; which is the standard deviation of WTP. The standard deviation of WTP is identied from the change in the probability of a positive response as the bid changes. P 12 # % # Mean WTP is computed as tted WTP at the means of the explanatory variables 1=n n x0i b x0 b; and its i1 # % # % standard error as the square root of x0 Covbx; where Covb is the covariance matrix of the estimated regression coefcients. 13 The statistical literature (see Fahrmeir and Tutz [12]) informs us that, if random effects are present, the point estimates of the coefcients of the random effects Probit should be close to those of a Probit model that assumes independent observations. The standard errors of the estimates, however, can be quite different, depending on the correlation between the unobserved WTP amounts by the same respondent. We were surprised to obtain such a low estimate of the correlation coefcient, r; which we had expected to be substantially higher. Perhaps this result reects the routines difculty in identifying r: If r is less than one, one would expect to observe some reversals in the responses (e.g., at least a few respondents might say that they are willing to pay $25, but not, say, $15. This apparently inconsistent answer can be explained as arising from different draws from the distribution of WTP.) In this study, no inconsistencies were observed, which corroborated our expectation to nd that r is close to one. This expectation was not borne out in the estimation results.

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Table 3 Estimation results for ascending bids with polychotomous responses (version ABPR). (t-statistics in parentheses) (N 8540) (642 respondents) (A) Welsh Poe; Switch away from prob. Yes (B) Randomeffects Probit (Def. and prob. Yes=1 all else=0) 12.03 (0.46) 28.08 (2.06) 88.38 (5.84) 1.20 (2.67) 63.20 (3.66) 2.42 (9.01) 0.08 (1.93) 354.30 (34.83) (C) Random valuation; a and b are constants (D) Random valuation; a and b are constants (E) Random valuation; a and b linear in ICEFISH and MARINEF 80.35 (2.70)

Constant ICEFISH MARINEF AGE MALE INCOME in thou. $ PRICE PER TRIP s Threshold coefcients: g10 [constant] g11 [MARINEF] g12 [ICEFISH] g20 [constant] g21 [MARINEF] g22 [ICESFISH] Welfare measure: Mean WTP Std. Error around mean WTP

0.62 (0.10) 5.24 (0.16) 92.15 (2.626) 0.10 (0.10) 58.98 (1.48) 3.26 (5.40) 0.07 (0.79) 362.40 (31.42)

36.42 (58.02) 58.02 (3.51) 130.17 (7.15) 1.17 (2.25) 95.90 (4.58) 3.26 (9.98) 0.16 (3.14) 576.29 (54.44) 307.90 (46.72)

79.13 (2.58)

0.97 (1.79) 132.84 (6.38) 3.08 (9.70) 0.10 (2.09) 580.62 (54.34) 308.25 (46.60)

0.92 (1.74) 134.53 (6.52) 3.08 (9.74) 0.10 (1.99) 580.27 (54.34) 297.27 (38.30) 20.92 (1.74) 17.09 (1.58) 96.64 (21.98) 5.31 (0.66) 7.84 (1.06) 374 7.69

100.51 (28.41)

100.61 (28.38)

207 14.97

236 6.89

373 7.68

373 7.69

6.3. Models for polychotomous choice responses The rst type of random-valuation model is one that holds the thresholds constant across individuals. We rst t this model imposing the fewest restrictions necessary for identication of the welfare measure. Specically, we only need to impose the constraint that two of the thresholds

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Table 4 Estimation results for ascending bids with binary responses (version ABBR). (t-statistics in parentheses) (N 9019) (A) WelshPoe; Switch away from def. yes Constant ICEFISH MARINEF AGE MALE INCOME in thou. $ PRICE PER TRIP s Mean WTP Std. error around mean WTP 56.53 (1.04) 73.13 (2.46) 60.64 (1.83) 0.63 (0.50) 16.17 (0.40) 2.89 (5.14) 0.06 (0.82) 344.02 (34.35) 229 13.54 (B) Random-effects Probit (Def. yes=1 all else=0) 33.67 (1.23) 94.88 (6.93) 57.41 (3.77) 0.33 (0.77) 6.02 (0.33) 3.07 (11.58) 0.03 (0.81) 347.73 (36.08) 221 6.42

be symmetric around mean WTP, while the other two are estimated as free parameters. We experimented with rst setting the two inner thresholds (those that separate not sure and yes or no responses) equal to one another and then setting the outer thresholds (those that separate the probably from the denitely responses) equal to one another. However, likelihood ratio tests that compared each of these models with the fully constrained model (where the two pairs of thresholds are constrained to be symmetric with one another) did not reject the null hypothesis of full symmetry.14 Accordingly, we report the results of randomvaluation models with both pairs of thresholds restricted to be symmetric with one another in columns (C) and (D) of Table 3. Comparison of the random-valuation model (column (C)) with the WelshPoe model and the random-effects model shows that, with the only exceptions of the coefcients of age and income, all coefcients are dramatically different. Several coefcients double in size when moving from column (B) to column (C), and even the standard deviation of WTP, s; increases by 62%. The thresholds are large and statistically signicant: They imply that a respondents WTP amount must be at least $308 greater than the bid before a denitely yes answer is provided. Respondents whose WTP exceeds the bid by an amount between $100 and $308 will select the probably yes response category, while persons with WTP within a $100 of the bid will declare that they are not sure.
The likelihood ratio statistics are 0.68 (when the two inner thresholds are forced to be symmetric around mean WTP) and 0.69 (when the two outer thresholds are forced to be symmetric). In neither case is the fully restricted model rejected at the usual signicance levels.
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At $374, the estimated mean is larger than in the WelshPoe model and the random-effects Probit (an 80% and 63% increase, respectively). The standard error of the mean, at 7.69, is not much larger than that of the random-effects Probit. Thus, modeling the uncertain responses has a dramatic effect on the magnitude of the welfare measure, but no substantial effect on the efciency of the welfare estimate. In specication (D), we omit two regressors, the dummies for participation in marine shing and ice shing, and reserve them for later use as instruments to predict the thresholds that must be crossed before respondents feel more (or less) condent that they would make the payment.15 Omitting these variables results in relatively large changes in the intercept and the gender coefcient, but has minor effects on the other coefcients. The standard deviation of WTP, mean WTP and the standard error around mean WTP are virtually the same as in specication (C). In practice, despite our prior that shing taste and experience would be important in determining the thresholds, column (E) shows that there is little evidence in favor of the dummies (MARINEF and ICEFISH) we picked to explain the thresholds of the random-valuation model. The coefcients of the variables entering in the thresholds are largely insignicant. Even more important, the estimated coefcients, their standard errors and mean WTP remain virtually the same as in column (D), where the thresholds are the same across individuals.16 6.4. How do people respond in the absence of uncertain response options? The percentages of yes responses for the ABBR version are approximately equal to the sum of the percentages of denitely yes and probably yes responses to the ABPR version. In the current application this implies that when respondents are forced to give either a rm yes or a rm no and they are leaning toward answering yes (denitely or probably yes), they will tend to answer yes. The models tted to the data from ABBR version (Table 4) are qualitatively similar to the comparable models for the ABPR version (Table 3), and give estimated means that are similar. The estimated means from the Probit models are statistically undistinguishable across versions ABPR and ABBR for both the WelshPoe and the random-effects Probit models. The appropriate Wald statistics are 1.11 (p 0:29), and 2.52 (p 0:13), respectively. Wald tests also indicate that the estimate of s is not statistically different across subsamples (Wald statistics 1.45 for the WelshPoe model and 0.22 for the random effects Probit model, p-values 0.23 and 0.64).
15 We avoid having overlapping variables between the determinants of mean WTP and the determinants of the thresholds to ensure identication of all parameters (see Sections A.1 and A.3 of Appendix A). 16 The assumption that the observations within a respondent are independent requires some care in interpreting the estimates of the standard errors around the point estimates of the mean. For good measure, we also estimated these models using a single response, randomly selected among the responses provided to the panel of 14 bids, for each person, and averaged the estimates of the coefcients and of the welfare measure over 100 replications. This procedure is robust to the lack or presence of correlation among the responses (as correlation within an individual, if any, is no longer relevant), and allows one to check for possible order effects or abnormalities in the response patterns as the bid values change. The results obtained when the random-valuation models were re-estimated using a single response per person are very similar to those reported for each of these models in Table 3, except, of course, for the fact that the standard errors are larger. Since estimation with random draws is robust to the presence or absence of correlation among the responses, this conrms that our assumption of independence for the models reported in Table 3 does not bias the point estimates.

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This clearly indicates that, when faced with the choice between rm yes and no responses, persons who were uncertain, but leaning toward answering yes, chose yes. 6.5. Is there an order bias? We found some interesting differences in the responses to the ABPR and the DBPR versions. The general shape of the distribution of the responses from the DBPR version is similar to that from the ABPR version shown in Fig. 1. That is, the proportion of denitely yes responses declines with the bid, the percentage of denitely no responses increases with the bid, and not sure responses are more common at middle bid values. However, as shown in Fig. 2, the frequency of denitely yes responses decline more slowly as the bid amount increases in DBPR version than in the ABPR version. In fact, the percentages of denitely yes responses are higher at every bid level in the DBPR version than in the ABPR version, and the percentages of denitely no responses are lower at every bid level. Comparisons of the frequencies of not sure responses reveal that at all bid levels the people responding to the ABPR version were slightly more likely to indicate that they were unsure than were respondents to the DBPR version. The highest percentages of not sure responses are for the $200 bid in the ABPR version (18.3%) and for the $300 bid in the DBPR version (11.2%). To formally test for respondent sensitivity to the order of the bids, we estimate multinomial logit (MNL) models using the bid level as the only regressor. For the null hypothesis that the MNL coefcients are the same in both versions of the survey, the likelihood ratio test is x 2log LR log LU ; where R denotes restricted (one model for both versions) and U stands for unrestricted (separate models for each version). Under the null hypothesis of no difference, the statistic x is distributed as chi-square with 8 degrees of freedom. The test statistic is equal to 721, falling in the rejection region of the null hypothesis, and suggesting that there is an order effect. We may further speculate that the DBPR version is likely to yield higher welfare estimates than the ABPR version due to the differing patterns of denitely yes and denitely no responses. The data suggests that starting the panel of bids with the highest bid leads respondents to be more likely to answer yes to all subsequent bid amounts relative to a panel where the rst bid is the
100 90 80 70 60 50 40 30 20 10 0 $0 $500 $1,000
Pct. Def Yes (ABPR)

Percent

$1,500

$2,000

$2,500

Bid Amount
Pct. Def Yes (DBPR)

Fig. 2. Percent Denitely Yes responses in ABPR and DBPR versions.

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lowest dollar amount. This suggests a starting-point issue such as has been identied for singlebounded [8] and double-bounded [16] questions. This may also be evidence of uncertainty in preferences if respondents anchor their responses on the rst bid provided: Well-dened preferences should not lead to anchoring. Finally, the results from tting the WelshPoe, random-effects Probit, and random-valuation models to data from the DBPR version are not surprising given the distributions of responses presented in the gures. The estimated coefcients for the descending bids (Table 5) tend to be much larger than their comparable estimates for the ascending bids (Table 3). The sample presented with descending bids provides larger estimates of mean WTP (over a 100% increase for the WelshPoe and random-effect Probit models), and larger standard errors around mean WTP for all models. Overall, the qualitative differences between the results of all models tted to the data from the DBPR version are similar to those between the results of all models for the sample presented with the ABPR version. Using responses to all bids, and treating them as separate draws from the distribution of WTP, increases the efciency of the welfare estimate and modeling the uncertain responses substantially increases the welfare estimate. We checked whether the tendency of persons given the DBPR to reveal higher WTP values was specic to certain groups of respondents (e.g., more highly educated subjects vs. less educated subjects, anglers with ice shing experience and without, etc.), but found that the differences in responses between these groups for the ABPR and DBPR treatments were roughly the same as the differences for the sample as a whole. Having established that presenting the bids in descending order results in larger mean WTP, we wished to check whether such effect was due to a uniform increase in all regression coefcients, or was restricted to the coefcients of a few key regressors. We present in Table 6 the results of such an investigation when we t a random-valuation model with constant thresholds. Column (A) of Table 5 reports the intercept plus the estimated coefcients on the usual ve regressors (ICEFISH, MARINEF, age, household income, and expenditure per trip in the past shing season), a dummy for version DBPR, and interaction terms between each of the ve regressors and the dummy for version DBPR. The coefcient of the DBPR dummy, therefore, when summed with the intercept, gives the intercept for respondents who were given the DBPR questionnaire. Similarly, the coefcients of the interaction terms tell us by how much the DBPR slope coefcients differ from their ABPR counterparts. Column (A) shows clearly that the impact of the order in which the bids were presented is limited to the intercept and the coefcient of ICEFISH, which are much larger in the DBPR version, while the coefcients of all of the other regressors are roughly the same. In column (B) of Table 6 we report the results of tting a similar model with pooled samples and a single set of coefcients, conrming once again that while pooling the data introduces dramatic bias in the estimates of the intercept and ICEFISH, the other coefcients are much less severely affected.17
The results of column (B), Table 6, can also be used, along with those displayed in columns (D) of Tables 3 and 5, to formally test the null hypothesis that all parameters differ across the ABPR and DBPR subsamples. The likelihood ratio statistic is 478.2, and the null hypothesis is, therefore, soundly rejected. When this exercise is repeated for the independent Probit and the WelshPoe model, the resulting likelihood ratio statistics are 396.18 and 190.65. In both cases, the null of identical parameters is rejected, the test statistic falling in the rejection region of the chi-square with 8 degrees of freedom.
17

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Table 5 Estimation results for descending bids with polychotomous responses (version DBPR). (t-statistics in parentheses) (N 8483) (642 respondents) (A) WelshPoe; Switch away from prob. Yes (B) Randomeffects Probit (Def. and prob. Yes=1 all else=0) 165.63 (3.79) 184.23 (8.16) 90.92 (6.61) 1.98 (2.76) 30.75 (1.06) 2.98 (7.05) 0.13 (2.65) 518.72 (40.72) (C) Random valuation; a and b are constants (D) Random valuation; a and b are constants (E) Random valuation; a and b linear in ICEFISH and MARINEF 416.44 (13.03)

Constant ICEFISH MARINEF AGE MALE INCOME in thou. $ PRICE PER TRIP s Threshold coefcients g10 [constant] g11 [MARINEF] g12 [ICEFISH] g20 [constant] g21 [MARINEF] g22 [ICEFISH] Welfare measure: Mean Std. error around mean WTP

67.65 (0.81) 152.69 (3.22) 104.29 (1.95) 3.29 (2.25) 0.08 (0.12) 2.60 (4.06) 0.01 (0.23) 543.13 (33.42)

289.56 (8.05) 163.29 (8.70) 116.45 (5.60) 1.52 (2.60) 62.50 (2.56) 2.70 (7.65) 0.11 (2.89) 632.61 (57.69)

416.16 (10.51)

0.43 (0.56) 99.05 (4.08) 2.35 (6.60) 0.05 (1.36) 640.63 (57.47)

0.41 (0.87) 100.87 (4.14) 2.36 (6.67) 0.04 (1.19) 640.24 (57.44)

311.35 (6.18)

311.23 (45.97)

299.13 (36.44) 28.87 (2.10) 15.13 (1.26) 91.87 (19.13) 13.62 (1.61) 9.35 (1.27)

91.52 (5.13)

91.39 (25.10)

448 21.65

514 10.98

627 9.60

626 9.50

627 10.42

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Table 6 Comparison of random-valuation models for ascending bids with polychotomous responses (version ABPR) and descending bids with polychotomous responses (version DBPR). (t-statistics in parentheses) (A) Pooled data model with shift terms Constant ICEFISH MARINEF AGE MALE INCOME in thou. $ PRICE PER TRIP 28.08 (0.58) 60.38 (3.48) 134.07 (7.02) 1.22 (1.86) 98.34 (4.37) 3.36 (10.03) 0.17 (3.17) 262.02 (5.20) 99.42 (3.98) 20.02 (0.72) 0.25 (0.81) 37.08 (11.18) 0.72 (1.48) 0.07 (0.95) s 606.26 (79.56) 618.86 (78.94) (B) Pooled data model with no shift terms 142.71 (5.86) 123.27 (9.74) 114.00 (8.17) 1.32 (3.23) 94.64 (5.84) 3.04 (12.65) 0.15 (4.93)

Version DBPR dummy ICEFISH DBPR dummy MARINEF DBPR dummy AGE DBPR dummy MALE DBPR dummy INCOME DBPR dummy PRICE PER TRIP DBPR dummy

Threshold coefcients g10

311.55 (65.99) 97.11 (38.06) 19,052.82 17023

310.80 (65.33) 96.55 (37.89) 19,279.74 17023

g20

Log likelihood N

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7. Conclusions Four important lessons emerge from our analysis. First, interpreting responses to all bids as separate draws from the distribution of WTP results in comparable welfare estimates, but smaller standard errors, when compared to the WelshPoe model that models the interval where responses switch from yes to no. Thus, while multiple bids can reduce the interval within which the latent variable lies, using the individual responses to all bids as separate draws appears to further increase the statistical efciency of the resulting welfare estimate. In addition, the error correlation within individual responses is only 0.06. While this may be specic to our individual application, it does suggest that researchers should not immediately abandon the treatment of multiple responses as independent draws. Second, respondents do utilize the response categories that imply some degree of uncertainty. Moreover, in our application, attempting to explicitly include uncertain responses in the econometric analyses substantially increases welfare estimates.18 These results are in sharp contrast with those by Li and Mattsson [18], who nd that mean WTP decreases after one accounts for uncertainty in the responses. This divergence of ndings, and the dramatic increase in welfare estimates we observed, suggest that more research is needed to understand why people choose to use uncertain responses to contingent-valuation questions, before the validity of using polychotomous responses can be established. Third, comparisons of the response distributions and welfare estimates for our ABPR and ABBR versions suggest that in the absence of uncertain response options people who would have answered denitely or probably yes will chose to answer yes, which is the recoding we used. Thus, our results do not support the nding of Welsh and Poe that people who are uncertain, but not leaning toward answering no, will answer yes, i.e., those who answer unsure will not answer yes. Our results also do not support the Carson et al. [9] nding that all uncertain responses would be no responses in a binary yes/no response choice. Fourth, the order of presenting the bid panel does affect the responses and the magnitude of the welfare estimates. This is against some researchers heuristic argument that the panel of bids reduces the focus on a single bid or on two sequential bids and thereby avoids anchoring effects. Roach and Boyle [20] show that truncating the bid range also affects welfare estimates from multiple-bounded questions, which is similar to the result that Rowe et al. [22] found when the range of a payment card is truncated. DeShazo [11] discusses reasons for differences in the responses between ascending and descending sequences where bids are administered sequentially, but it is unclear whether these possible explanations carry over to the multiple-bounded context, where all bid amounts are shown to the respondent at the same time. The intuitive analogy here is that the magnitude of the starting, or rst, bid in the panel still appears to provide an anchor that affects welfare estimates. The bottom line with respect to using multiple bids is that the efciency of welfare estimates is increased, but this approach does not resolve bid-design problems. This leaves the researcher with
The results agree with the evidence from another study which used the multiple-bounded, polychotomous-choice approach to obtain the value of increases in the populations of grassland birds associated with USDAs Conservation Reserve Program [4]. The random valuation modeling framework always gives higher mean WTP amounts than the WelshPoe and Probit models.
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the age-old tradeoff between efciency and bias. In our application, welfare estimates increase dramatically when uncertain responses are explicitly modeled. Our ndings, and the contrast between our ndings and those of previous studies that have allowed uncertain responses, suggest that more consideration needs to be given to the framing of the questions and responses formats that allow for uncertainty, and the reasons people choose to give responses that indicate uncertainty. Appendix A. Econometric models employed A.1. WelshPoe model If a person checks probably yes at $5, but not sure at $10, one way to interpret this response, for a recoding of denitely and probably yes to yes, is to treat the respondent as being willing to pay $5, but not $10. Hence, willingness to pay lies within the interval between $5 and $10, and this persons contribution to the likelihood function is the probability that $5 and $10 bracket this subjects WTP amount. The log likelihood function is n X log PrWTPo$XiH PrWTPo$XiL ; A:1 log L
i1

where $XiL is the highest bid at which respondent i answered probably yes, and $XiH is the bid level at which the subject switched to a not sure response. Welsh and Poe [24] assume that WTP is a logistic, but other distributions are possible; here, we assume normality. The log likelihood function is thus  H   L ! n X Xi xi b Xi xi b log F F ; A:2 log L s s s s i1 where xi is a 1 k vector of regressors, b is a k 1 vector of parameters, s is the standard deviation of WTP, and F is the standard normal cdf. A.2. Random-effects Probit model The recoded yes/no indicators are stacked, resulting in 14 observations for each respondent (one response for each bid in the panel). It is assumed that respondents potentially revise their WTP amounts when answering the payment question. Hence, the response at each dollar amount is motivated by WTPij xi b eij ; where i indexes the respondent, j indexes the bids, and the eij s are error terms. Each revision, however, remains unobserved to the researcher. A yes response is observed if WTP XBidj : ij It is further assumed that the error term e can be broken down into two components: eij ni Zij : This decomposition assumes that when answering payment question j; respondent i bases his choice of response category on WTP xi b ni Zij : The WTP amounts underlying the ij response at each bid levels, WTP ; are, therefore, correlated, and the correlation coefcient ij between the WTP amounts underlying responses at any two bid levels is constant.

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The independent variables in the Probit model include the intercept, individual characteristics of the respondent xi ; and the bid value; a yes response is coded as a one for the purpose of # tting the random-effects Probit model. Denote the estimated Probit coefcients for xi as a and # for the bid variable as d: If latent WTP is normally distributed around mean xi b and has variance s2 ; it can be shown [7] # # # # # that b a=d; s 1=d: # The standard errors of b and s are derived from the covariance matrix of the Probit coefcients # # using the delta method [6]. Specically, the covariance matrix of b and s2 is computed as g0 Vg; # where: 3 2 1=d 7 6 6 1=d 7 7 6 A:3 g6 7 4 y 5 1=d2 # # and V is the block of the covariance matrix of the estimates that refers to a and d: A.3. Random-valuation models The random valuation model developed by Wang [23] is well suited for this interpretation of how subjects answer polychotomous-choice payment questions. Wang [23] suggests that a respondent answers yes only if latent WTP amount is sufciently large relative to the bid, no only if latent WTP amount is sufciently small relative to the bid, and dont know if latent WTP amount lies in between. Assuming that WTP is normally distributed, the log likelihood function is for three response categories and a single-shot payment question:  ! X  ! X ti ai xi b ti bi xi b log L log 1 F log F s s iAyes iAno    ! X ti ai xi b ti bi xi b log F F ; A:4 s s iADK where ti is the bid level assigned to respondent i: If ai and bi are constants (ai  a and bi  b for all is), then Eq. (A.4) is effectively an ordered Probit model. This is easily seen if the contributions to the likelihood in Eq. (A.4) are compared for those of an ordered Probit model [14]. The ordered Probit model produces one less estimated coefcient than the number of parameters in the model, requiring that one identication restriction be imposed. To illustrate, if (A.4) is estimated as an ordered Probit model, the two constants produced by the estimation routine are a1 a b0 =s and a2 b b0 =s; where b0 is the intercept in the expression for WTP (and mean WTP if no other regressors are included in WTP equation). Examples of possible identication restrictions are (i) setting a and b symmetric around mean WTP (i.e., a b), or (ii) setting a=b equal to a constant. To better capture the fact that individual may have different search costs, the thresholds ai and bi may be specied as linear functions of a set of individual characteristics: ai zi g1 and bi zi g2 :

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If the thresholds are linear functions of regressors and parameters, the parameters b and g are identied only if z and x do not include any overlapping variables, or the ratio of ai to bi is set to a specied constant. We adapt the Wang model to the situation with ve response categories, assuming that respondents can revise their WTP amounts, and the error terms are independent. Specically, we introduce four threshold levels, a; b; c; and d: One identifying restriction is needed to separately identify all coefcients and thresholds, since the ordered Probit routine produces one fewer coefcients than the number of parameters of the model. One can set d a; or c b: Here, we assume that c b; and d a: A respondent answers denitely yes to the question if WTP > Bid a; probably yes if Bid boWTPoBid a; not sure if Bid boWTPoBid b; probably not if Bid aoWTPoBid b; and denitely not if WTPoBid b: The log likelihood function is: (  ! n X X tj ai xi b log 1 F logL s i1 jAdef:yes    ! X tj ai xi b tj bi xi b log F F s s jAprob:yes    ! X tj bi xi b tj bi xi b log F F s s jAnot sure  ! X  ! ) X tj bi xi b tj ai xi b log F log F ; A:5 s s jADK jAprob:no where j indexes the payment question within the questionnaire. In another variant of Eq. (A.5) we allow a; b; c; and d to vary with the respondent, and to be a function of respondent characteristics, mirroring the notion that different people incur different search costs and have different ability to answer with condence the payment questions.

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