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Thursday, February 15, 2018 at 10:30am
Over two decades ago, the NOAA Blue Ribbon panel suggested that stated preference methods should undergo rigorous tests of their capability to produce temporally stable welfare estimates. Since that time, a rich literature has emerged on the temporal reliability of stated preference methods. However, similar tests of the reliability of revealed preference methodologies have received far less attention. In this paper, we utilize a unique panel dataset of Iowa households to test the stability of revealed preference recreational demand models. We find that welfare estimates of changes in water quality are not temporally stable over more than two periods, while welfare estimates associated with a site closure are more reliable. We attribute this difference in stability to the use of alternative specific constants as a means to address issues related to omitted variable bias associated with the travel cost parameter.
Catherine L. Kling is the Charles F. Curtis Distinguished Professor of Economics, President’s Chair of Environmental Economics. She has served as Director of the Center for Agricultural and Rural Development at Iowa State University since 2013, and was elected to the National Academy of Sciences in 2015.