Using structural restrictions to achieve theoretical consistency in benefit transfers

Area of Science:

• Environmental Economics
• Nonmarket Valuation
• Meta-Analysis

Background:

• Benefit transfer is crucial for policy evaluation but often lacks theoretical consistency.
• Existing methods may produce unreliable willingness-to-pay estimates due to statistical focus.
• Theoretical validity, like the adding-up condition, is vital for robust policy analysis.

Purpose of the Study:

• To develop a theoretically consistent willingness-to-pay function for surface water quality improvements.
• To ensure benefit transfer functions satisfy the adding-up condition.
• To compare a new structural meta-regression approach with traditional non-structural methods.

Main Methods:

• Meta-regression analysis of 51 stated preference studies.
• Specification of a marginal willingness-to-pay function to derive total willingness-to-pay.
• Estimation using non-linear least squares to ensure compliance with the adding-up condition.

Main Results:

• A new meta-regression model was estimated, ensuring the benefit transfer function satisfies the adding-up condition.
• The structural approach yields different willingness-to-pay estimates compared to non-structural models.
• Illustrative calculations demonstrate the quantitative impact of imposing the adding-up condition.

Conclusions:

• The proposed method enhances the theoretical validity of benefit transfer functions for environmental policy.
• Imposing the adding-up condition leads to more reliable estimates for policy-relevant valuations.
• This approach offers a more rigorous framework for valuing environmental improvements.