Valuation of Biodiversity Benefits (OECD)

iwhere C is the income adjustment necessary to leave the individual as well of with bundle i as shewas with bundlei0 (compensating variation). Rearranging (3) and solving for C yields,i0 0 0i iC = m − g[r ( p , q , m,z),p , q , z](8)iWhere g is the inverse of r with respect to income. If we assume that marginal utility of income islinear, then the difference in ratings is given by, 27i i iiir ( p , q , m,z)= r(q , z)+ a(m − p )(9)By taking differences the income variable drops out, thus,i i i 0 i0i o∆ r ( p , q , q , z)= r(q , z)− r(q , z)− a(p − p ) (10)Roe et al. (1996) show that compensating variation can be obtained from the above by adding or0subtracting dollars from ( p i − p ) until the change in ratings ( ∆r)equals zero. Then compensatingvariation for a change from0q toCiiq is given by0r(q , z)− r(qii 0= [{, z)}/a]− ( p − p )(11)Binary response (choose one) conjoint can be estimated from (7) using the standard random utilitymodel:i i ii 0 0 00Pr( i)= Pr{ v ( p , q , m,z)+ ε > v ( p , q , m,z)+ ε }(12)The probability that the program having attributes i is chosen is the probability that the indirect utilityof program i plus a random error is greater than the indirect utility of program 0 and its error term.Methodology: Survey Design and Statistical AnalysisConjoint models individuals’ preferences by considering the tradeoffs that they are willing tomake. The use of focus groups comprised of individuals drawn from the population of interest allowsthe researcher to determine what attributes are important to the survey population. Further, the focusgroup allows the researcher to hone in on changes in the levels of an attribute that are salient to thesurvey respondent.Conjoint surveys by their nature are complex. Each possible choice comprises bundles ofattributes, with each attribute having different levels. These choices are more readily presented byproviding an information packet that may include black and white illustrations and descriptions ofattributes and levels. Because of this complexity, most studies to date have used a mail-in format.Four types of conjoint surveys can be constructed. A ranking format asks the subject to rankalternative scenarios (1, 2…7, etc.) each with different attributes and levels from most to least27This is standard in the extant literature, however marginal utility of income need not be linear.114