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Duke Economics Working Paper #96-20

Semiparametric Estimation of Willingness to Pay Distributions

Mark Yuying An

Abstract

The most popular survey method used in contingent valuations asks "open-ended" dichotomous choice questions. This method generates grouped or interval-censored data on respondents' willingness to pay. This paper specifies the willingness to pay distribution using the proportional hazard specification in duration analysis. This semiparametric distribution, on the one hand, controls for the effects of observed personal characteristics, and on the other, allows the shape of the distribution to be unspecified. To estimate the willingness to pay distribution from grouped data, we propose both a maximum likelihood estimation method and a minimum Chi-square method. The latter procedure applies to "many observations per cell" cases where the observable covariates are either categorical or amendable to sensible grouping. Specification tests for the proportionality assumption are proposed. The statistical inference procedures are illustrated using the data set from the San Joaquin Valley contingent valuation survey.

Key Words: Contingent Valuation, Willingness to Pay, Semiparametric Estimation, Minimum Chi-Square.

JEL: C14, C25, Q20

Published in American Journal of Agricultural Economics, Vol. 82, No. 3, August 2000, pp. 487-500.