Sh. Yoo et al., Modelling willingness to pay responses from dichotomous choice contingent valuation surveys with zero observations, APPL ECON, 33(4), 2001, pp. 523-529
Modelling household behaviour with the data from dichotomous choice conting
ent valuation (DCCV) surveys is often complicated by zero willingness to pa
y (WTP) responses ill the sample. To deal with the zero responses, a two-eq
uation model is considered, which incorporates a two-level decision structu
re, a decision on whether to participate in having WTP and a decision on th
e WTP amount conditional on deciding to participate, and two separate stoch
astic processes that determine the probability and conditional level of WTP
are featured. The model is empirically applied to household survey data, i
n which the DCCV questions concerned the benefits of air quality improvemen
t in Korea. To put the issue of the two-equation model in perspective, this
paper also experiments with economic and econometric specifications: utili
ty theoretic restriction and heteroscedasticity. It is shown how failure to
allow for the restriction distorts aggregate benefit estimates and the exi
stence of heteroscedasticity in error term is found.