Diagnosing Insensitivity to Scope in Contingent Valuation
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Diagnosing Insensitivity to Scope in Contingent Valuation Ana Faria Lopes1 · Gorm Kipperberg1 Accepted: 9 July 2020 / Published online: 9 August 2020 © The Author(s) 2020
Abstract Sensitivity to scope is considered a desirable property of contingent valuation studies and often treated as a necessary condition for validity. We first provide an overview of scope insensitivity explanations put forth in the environmental valuation literature. Then we analyze data from a contingent valuation survey eliciting willingness-to-pay to prevent oil spills of four different magnitudes in Arctic Norway. In the baseline analysis, the scope inference is ambiguous. There is only statistical difference in willingness to pay to avoid a very large versus small oil spill (NOK 1869 and NOK 1086, respectively). However, further explorations show that several confounding factors suggested in the literature influence the scope inference. The scope sensitivity improves when we control for subjective probabilities of amenity provision, exclude respondents based on the debriefing questions, take into consideration the sample sizes, and impose diminishing marginal utility. Overall, the analysis supports an emerging view in the contingent valuation literature suggesting that statistical scope insensitivity is not a sufficient reason for deeming a study invalid. Keywords Contingent valuation · Sensitivity to scope · Scope testing · Scope elasticity · Willingness-to-pay Abbreviations CV Contingent valuation NOAA National Oceanic and Atmospheric Administration NOK Norwegian kroner SP Stated preference WTP Willingness-to-pay
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1064 0-020-00470-9) contains supplementary material, which is available to authorized users. * Ana Faria Lopes [email protected] 1
UiS Business School, University of Stavanger, 4036 Stavanger, Norway
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A. F. Lopes, G. Kipperberg
1 Introduction Basic microeconomic intuition suggests that “It is reasonable to assume that larger amounts of commodities are preferred to smaller ones” (Mas-Colell, Whinston, and Green 1995). Therefore, it is generally expected that respondents are willing to pay more for preventing a larger damage or receiving a higher quantity or quality of a good (e.g., Smith and Osborne 1996; Carson et al. 2001; Whitehead 2016). This empirical expectation follows formally from the monotonicity (non-satiation) axiom of consumer preferences (e.g., Varian 2014). In Contingent Valuation (CV) studies, this property is known as scope sensitivity.1,2 According to the National Oceanic and Atmospheric Administration (NOAA) Blue Ribbon Panel on CV, presence of scope sensitivity is evidence of internal or construct validity, while absence of scope sensitivity puts the validity of the study into question (Arrow et al. 1993). For this reason, the NOAA Panel recommends that welfare measures are tested for sensitivity to scope “…in order to assure reliability and usefulness of the informati
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