Nonparticipation or misspecification? The impacts of nonparticipation on dichotomous choice contingent valuation

Dichotomous choice (or Referendum) contingent valuation surveys have become the predominate choice for valuing goods and services otherwise not valued in a standard market (nonmarket goods and services). A number of researche rs have recently recommended that dichotomous choice contingent valuation s tudies include a follow-up question to all no responses to determine whethe r the no response is a result of unwillingness to pay, or nonparticipation. If the goal of the study is to investigate the impact of covariates on eit her mean willingness to pay or the probability of nonparticipation, simple identification of indifferent individuals will not suffice. A simulation st udy shows that existing econometric models designed to account for nonparti cipation are extremely sensitive to misspecification bias. Accurate identif ication of the probability of nonparticipation is hampered by potential mis specification of the distribution of willingness to pay.