Effect of substitutes in contingent valuation for a private market good

ABSTRACT

Economic theory predicts a decrease in valuation as the availability of substitutes increases. This paper describes a contingent valuation (CV) survey that investigates the effect of substitutes on valuation of private market goods. Using an approach that compares willingness to pay (WTP) values elicited from a CV question that accounts for substitutes with WTP values elicited from a similar question without substitutes, we find that allowing for substitutes can moderate WTP values. For the item valued in this study, a hamburger sandwich, allowing for substitutes was associated with a reduction of from 10% to 16% in stated values.

KEYWORDS:

• Contingent valuation
• market good
• field substitutes

JEL CLASSIFICATION:

• C90
• C91
• C99

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Respondents’ prior knowledge about food irradiation and direct-fed microbials were 2.02 and 2.04 in the mail survey and 1.76 and 1.93 in the lab survey on a scale of 1 = ”nothing” to 5 = ”a great deal”.

² The sample was purchased from a commercial provider. The first mailing included a signed personalized cover letter and was followed a week later with a reminder postcard. A second copy of the instrument was mailed only to respondents who requested it.

³ To check the robustness of our results , we controlled for the effects of different recruitment sources using dummy variables in the regression analyses below. The results were robust to to the inclusion/exclusion of these dummy variables.

⁴ Reported p-values are for 2-sided t-tests on the difference in means.

Additional information

Funding

This work was supported by the U.S. Department of Agriculture-National Institute of Food and Agriculture (USDA-NIFA) Coordinated Agricultural Project (CAP) grant, titled Shiga-toxigenic Escherichia coli (STEC) in the Beef Chain: Assessing and Mitigating the Risk by Translational Science, Education and Outreach [Award # 2012-68003-30155].