Parametric and Non-parametric Models To Estimate Households’ Willingness To Pay For Improved Management of Watershed


Myrna G Carandang, Margaret M Calderon, Leni D Camacho, Josefina T Dizon
Vol 11 No 2 (2008), pp. 68-78

 

Abstract:

 

This paper explores the applicability of parametric and nonparametric models to estimate households’ willingness to pay (WTP) for improved watershed management. The parametric models used are spike and logit models, while the Turnbull estimator and the lower bound estimation approach were used for the nonparametric estimation.

The analyses made use of data obtained from a survey carried out in 2004 of 2,232 Metro Manila households. The WTP estimates of the spike and logit models are PhP 24.00 and PhP 29.00 per household per month, respectively, which are lower than the nonparametric WTP estimates. This can be attributed to the fact that parametric models consider the effects of the independent variables on WTP. While the nonparametric estimation is characterized by its simplicity, the sample mean WTP was calculated only from the raw data or actual response data without any distributional assumptions for the unobserved component of preferences. The mean WTP estimates generated by the study can be a basis in setting the price of raw water for Metro Manila households on the premise that the revenues that will be generated will be used for the improvement of the Angat, Ipo, Umiray and La Mesa watersheds.

 

Keywords: non-parametric methods, logit model, spike model, willingness to pay


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