Calculating Willingness to Pay

For calculating the WTP, we need to estimate the parameters α and β for the vector of
explanatory variables (Haab and McConnell, 2001). A CV question induces the respondent to
choose between the proposed condition at the required payment, and the current state. The
required payment therefore states the respondent’s wiliness to pay in order to achieve the
proposed scenario. In our case, the WTP is the proposed price of non-GM product that would
make the respondent indifferent between consuming GM (paid with the current price of GM
product) and non-GM product. Based on this principle, the WTP for non-GM food product can
be defined as:

αι Zj + β (y - WTPngmj) + ει_j∙ = αo Zj + β (y - WTPgmj) + εoj                 (11)

Solving equation (11) for WTP yields:

WTPngmj - WTPgmj = α Z ∕β + ε β                                   (12)

Where: α = α₁ - α₀

^εj = ^εij ^{- ε}0j

However, the parameters are unknown and therefore must be estimated. In the expression for
mean, only the ratio of parameter estimates is required. Relying on Slutsky’s theorem on
consistency, the logit maximum likelihood estimates for θ = {α∕σ, β∕σ} are consistent (Haab and
McConnell, 200i). Therefore, a consistent estimate of expected willingness to pay for non-GM
food product derived from equation (i2) is:

E (WTPngmj - WTPgmj| α, β, Zj) = α Zj ∕ β                                (13)

where α is the vector of the estimated coefficients of the explanatory variables, and β is the
estimated coefficient of the price difference between non-GM and GM food product. Note that
the estimated price coefficient obtained from equation (9) is (-β), and therefore the calculation of
WTP needs to reverse the sign for β.

<<   6   7   8   9   10   11   12   >>

More intriguing information