Valuation Biases Caused by Public Distrust : Identification and Calibration with Contingent Valuation Studies of Two Air Quality Improvement Programs in China

Summary: Contingent valuation (CV) studies often adopt public programs in the scenario designs in order to increase credibility and to ensure incentive compatibility. However, such scenario designs can introduce biases in willingness-to-pay (WTP) estimations due to the potential distrusts of respondents in the governments who are responsible for implementing the public programs. In this study, a joint selection modeling strategy, which accommodates both valuation protests and WTP adjustments, is developed for identification and calibration of the potential biases in WTP estimations caused by the public distrust in government. The joint selection model of WTP with public distrust in government is applied to two CV studies conducted in China on air quality improvements. Both channels through which public distrust in government can affect WTP estimation, valuation protest and WTP adjustment, are empirically identified, and the potential biases in WTP estimation caused by the public distrust in government can be as high as 20%.