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Deriving Willingness-to-Pay Estimates of Travel-Time Savings from Individual-Based Parameters

Author

Listed:
  • David A Hensher

    (Institute of Transport and Logistics Studies, Faculty of Economics and Business, University of Sydney, NSW 2006, Australia)

  • William H Greene

    (Department of Economics, Stern School of Business, New York University, New York, USA)

  • John M Rose

    (Institute of Transport and Logistics Studies, Faculty of Economics and Business, University of Sydney, NSW 2006, Australia)

Abstract
There is a small but growing literature that promotes the derivation of distributions of willingness-to-pay (WTP) estimates using information specific to each individual observation. These are referred to as individual conditional distributions, in contrast to approaches that rely on unconditional distributions that use random assignment in the construction of WTP distributions within a sampled population. The interest in alternative specifications is in large measure attributed to the search for empirical ways of deriving the WTP distribution that satisfies a behaviourally acceptable sign and range over the entire domain. In this paper we examine both conditional and unconditional approaches to establishing WTP distributions within the context of a mixed logit model. We find that calculating WTP measures from ratios of individual-level parameters in contrast to drawing them from unconditional population distributions empirically reduces the incidence of extreme values. Our results suggest that although problematic estimates cannot be ruled out, the use of the extra information on each individual's choices is a valuable input into the derivation of WTP distributions.

Suggested Citation

  • David A Hensher & William H Greene & John M Rose, 2006. "Deriving Willingness-to-Pay Estimates of Travel-Time Savings from Individual-Based Parameters," Environment and Planning A, , vol. 38(12), pages 2365-2376, December.
    • Handle: RePEc:sae:envira:v:38:y:2006:i:12:p:2365-2376
    DOI: 10.1068/a37395
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    References listed on IDEAS

    as
    1. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
    2. Train, K. & Weeks, M., 2004. "Discrete Choice Models in Preference Space and Willingness-to Pay Space," Cambridge Working Papers in Economics 0443, Faculty of Economics, University of Cambridge.
    3. Louviere,Jordan J. & Hensher,David A. & Swait,Joffre D., 2000. "Stated Choice Methods," Cambridge Books, Cambridge University Press, number 9780521788304, September.
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