STATISTICAL APPROACHES TO THE FAT TAIL PROBLEM FOR DICHOTOMOUS CHOICECONTINGENT VALUATION

If a cumulative density function estimated from dichotomous choice dat a has an unrealistically fat right-hand tail, mean willingness to pay (WTP) will be overestimated. Truncating the range of integration resul ts in a lower-bound estimate of the true mean WTP. A normalization pro cedure proposed by Boyle, Welsh, and Bishop (1988) unnecessarily depre sses the estimate further A new statistical approach is presented that allows a best-guess estimate of mean WTP. Because this estimate invol ves extrapolation beyond the range of the data, it tends to be highly variable. (JEL Q21)