Investigating the criterion validity of contingent valuation-willingness to pay methods

Abstract

With theoretical foundations in welfare theory, the cost benefit analysis (CBA) technique is a powerful tool for assessing benefits particularly where markets do not exist or would fail (for example due to the existence of public goods) or have become potentially politically excluded (such as the health sector). Unlike other economic evaluation techniques, costs and benefits are measured in monetary terms allowing for comparisons within and between different sectors of the economy for resource allocation decisions. Using contingent valuation (CV) techniques, people’s preferences for goods are determined by finding out what they would be willing to pay (WTP) for specified benefits or improvements; or accept (WTA), as compensation for withdrawal or loss of benefit. While the use of WTP methods has grown in other sectors, the uptake in health has been limited. A long-standing criticism is that stated WTP estimates may be poor indicators of actual WTP, calling into question their validity and the use of such estimates for welfare valuation. The aim of this thesis is to investigate the criterion validity of CV-WTP studies. A four-pronged approach including critical appraisals of the available literature and evidence on criterion validity and empirical analyses was adopted. The thesis established the scarcity in criterion validity assessments, particularly in the health sector and that evidence on the criterion validity of CV-WTP is more varied than authors are presenting. The variety in the methods used to assess and report criterion validity assessments is demonstrated. Further, the impact of the analysis of hypothetical WTP on criterion validity assessments and conclusions thereof is demonstrated. The empirical analyses further demonstrate the differences in predictions and predictors of WTP analyses, discussing the effect of these on criterion validity assessments and conclusions. Finally, the thesis offers suggestions for the reporting of criterion validity assessments, in efforts to improve the method.