2.5 Valuing benefits
2.5.3 Stated preference method: contingent valuation method
The earliest application of the CVM dates back to 1958, with an application to health
care arising in 1976 (Acton 1976; Hanemann 1992). Since then, the number of
published contingent valuation studies has increased considerably with almost double
the number of studies published in the period from 2005 to 2010 than in the preceding
15 years (Frew 2010a). The CVM is a survey-designed SP approach that estimates
welfare gains/losses as appropriate. It measures the value of a programme or intervention holistically, rather than measuring the value of a programme’s attributes individually like the DCE. The survey presents respondents with a hypothetical
scenario and asks them directly to state how much they would be willing to pay
(WTP), for example, to experience a welfare gain associated with a new treatment or
programme (Ryan et al 2008a). It can also be used to estimate how much people would
13 Each policy analysis is examined within this analysis. For information on state-of-the-world models,
see Chapter 4 (section 4.2.3.1); predicting market uptake (section 4.2.3.2); and measures of welfare change (section 4.2.3.3).
68
be willing to accept (WTA) in compensation to suffer a welfare loss (Ryan et al
2008a).
Despite the rise in contingent valuation studies, there are no formal guidelines on how
to approach and design a contingent valuation study within health care (Frew 2010b).14
Frew (2010b) outlines several key stages involved in designing an appropriate a
contingent valuation question specific to health care, as described below.
2.5.3.1 Scenario description
First and foremost, the scenario must be described as if the market for the benefits or
losses of a particular programme actually exists; the validity of the response, referred
to as content validity, is contingent on the description of the hypothetical market (Frew
2010b). Further, the presentation of the scenario should be all-encompassing,
describing all relevant information about the product and how it will be paid for
(Schulz and Grimes 2005). The choice of the payment vehicle is important as evidence
suggests that respondents are sensitive to the payment vehicle (Mitchell and Carson
1989; Stevens et al 1997). It may be described as an out-of-pocket expense, charitable
donation, an increase in income tax, among other payment formats. The appropriate
payment vehicle depends on the survey and survey environment. For instance, in a
tax-financed health care system it may be useful to describe the WTP/WTA question
in terms of a change in taxation as respondents may be more familiar with paying for
health care through taxation (Schulz and Grimes 2005).15
14 Within environmental economics, the National Oceanic Atmospheric Association (NOAA) published
a set of guidelines on how to conduct CVM studies (NOAA 1993). These guidelines are often cited in the health economics literature.
15 The scenario description and payment vehicle used in the CVM within this analysis are outlined in
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2.5.3.2 Equivalent and compensating variation / WTP versus WTA
CV and EV measure the amount of money that is required to keep utility levels
constant, referred to as Hicksian (income compensated) measures. As described in
section 2.3.4, EV measures changes in utility levels after a change in welfare has
occurred, while CV measures changes in utility levels before a change in welfare has
occurred. The appropriate direction of measurement (WTP/WTA) depends on whether
a welfare gain/loss is, or is at risk of, occurring. Framing of the welfare gain or loss is
important as it determines whether CV or EV should be used to measure welfare
change. CV is measured when WTP/WTA is elicited before a specific event occurs,
as the change in welfare (utility) is yet to take place. This is described as an ex ante
perspective (Shackley and Donaldson 2000). If the change in welfare has already
occurred, EV is measured since WTP/WTA is elicited from the new utility level. This
perspective is referred to as ex post (Shackley and Donaldson 2000).16
2.5.3.3 Instrumentation technique
Specific consideration must be given to the instrumentation technique. This may take
the form of a face-to-face interview, a telephone interview, or a mail survey. Mail
surveys are less costly to administer and can generate relatively large sample sizes
(Schulz and Grimes 2005). However, they are limited by what they can elicit, and
restricted by what they can assess. In contrast, face-to-face interviews and telephone
interviews allow researchers to actively engage with respondents, thereby eliminating
any misunderstanding that might arise during elicitation. These techniques are more
16 This analysis assumes an ex ante perspective, eliciting CV through WTP. For more information on
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costly and time-consuming, and often generate smaller sample sizes than mail surveys.
Face-to-face interviews are widely considered the best form of instrumentation.17
2.5.3.4 Elicitation format
There are a number of ways in which the CVM can elicit values. According to
Bateman et al (2002), the elicitation format may be open-ended whereby respondents
simply infer values according to their preference.18 A CVM may elicit values using an
iterative bidding technique, known as a bidding game (Bateman et al 2002). In a
bidding game, respondents enter a bargaining process with the interviewer and can
either accept or reject pre-determined bids. It is similar to an auction and can be
likened to real world “haggling” techniques (Frew 2010a). The elicitation format may
also take the form of a payment scale/card (Bateman et al 2002; Frew 2010a). This
simply provides respondents with a range of values to choose from. A payment card
usually has an open-ended option where respondents can identify their real willingness
to pay (or accept) if their maximum (minimum) WTP (WTA) is greater (lower) than
the highest (lowest) bid (Frew 2010a). Another elicitation format is the dichotomous
CVM, also termed closed-ended and referendum CVM, which simply seeks yes/no
responses (Bateman et al 2002). It simplifies the cognitive challenge faced by
respondents and is believed to represent ‘real-life’ situations as consumers are accustomed to evaluating goods and services at given prices. The dichotomous CVM
is similar to the DCE in that it asks respondents to choose between two competing
17 A self-completion questionnaire is adopted within this analysis to elicit WTP. The survey is presented
in Appendix B.3. For more information on the development of the CVM, including sampling, data collection, and participant information, see Chapter 4, section 4.3.3. Information on pilot testing is provided in section 4.3.1.4.
18 An open-ended WTP question is assumed in this analysis, along with a payment scale WTP question.
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alternatives. Alternatively, the CVM can employ a double bounded dichotomous
choice to elicit values. This supplements the level of information provided by the
dichotomous CVM by simply providing a follow-up question that is related to the
respondent’s initial response (Bateman et al 2002). 2.5.3.5 Contingent valuation biases
Since contingent valuation studies rely on the assumption that respondents behave in
the same way in hypothetical scenarios as they do in the real world, there are a number
of well-known biases inherent in the SP technique. Moreover, without a universally
accepted approach to contingent valuation studies, the validity and reliability of the
CVM depends on the magnitude of the associated biases. There are a number of
inherent biases associated with certain elicitation formats. For instance, starting-point bias might emerge in a ‘bidding-game’ where respondents ‘anchor’ their response around the initial bid. The anchoring effect may be minimised if the starting point is
randomly generated across respondents (Moher et al 2010), or if one-tenth of the
sample are randomly assigned to one-tenth of the starting bids (Schulz et al 2010).
Range bias might arise in a payment scale question design where respondents are
influenced by the range of values presented. Similar to the starting point bias it might
be useful to design different payment scales and randomly assign respondents to each
scale (Schulz and Grimes 2005).
Pearce and Ozdemiroglu (2002) attempted to refine best practice guidelines for
conducting contingent valuation studies. The aim of these guidelines is to reduce the
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justification bias, status-quo bias, availability bias, among other biases (Pearce and
Ozdemiroglu 2002).
2.5.3.6 Quantitative analysis of the CVM
Once the data are collected, cleaned, and entered into a statistical software package,
various analyses can be employed to explore WTP. Various responses exist for the
CVM. Some individuals may provide a positive WTP value; others may provide a zero
value, while others may protest against the task and offer no WTP value. Given the
inherent problems associated with zero and protest responses, initial comparisons
across demographics may be investigated (Frew 2010b).19 Positive WTP responders
may be compared against zero WTP responders and non-responders. Summary
statistics may be used in the first instance, followed by logistic regression analysis. It
is useful to capture how these groups differ in terms of demographics as important
WTP information is lost any time a zero or protest response is given.
Positive WTP values are described using CV or EV. Descriptive statistics are used to
describe both mean and median WTP values, as well as the distribution of the data
(Frew 2010b).20 This is important for regression analysis where different
specifications for the WTP variable may need to be assumed. Various regression
techniques may be used to explore WTP values, and depend on the elicitation format
(Frew 2010b). Linear regression or Tobit regression may be used for open-ended WTP
questions; logistic regression may be used for closed-ended WTP questions; and
interval regression may be used for the payment scale. Tobit regression is often
19 The demographics of zero and protest responders are analysed within the CVM, as outlined in Chapter
4, section 4.3.2.1.
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appropriate for open-ended questions where zero WTP values can be censored at the
lower bound.21
Preferences may also be explored in terms of respondents’ preferred alternative. If the marginal approach is assumed, information on respondents preferred alternative is
captured and can be explored using a probit model. This information may still be
obtained from the direct approach by categorising preferences according to the highest
WTP value. If an individual is willing to pay more for one alternative over another, it
can be assumed that the alternative with the larger WTP value is the preferred
alternative. Analysis of preferences is particularly useful when a considerable amount
of noise exists in the WTP values (Frew 2010b). This might arise from small sample
size, or wide ranging WTP values.22
Similar to the DCE, the CVM may be used in a formal CBA (Frew 2010a). This thesis
incorporates the CVM into a CBA of consultant- and midwifery-led care in Ireland.
The empirical applications of these different methodologies are presented next in
section 2.6.