• Working Paper

Valuing Environmental Risks: From Preference Calibration to Estimation

Citation

Pattanayak, S. K., Smith, V. K., & Van Houtven, G. (2003). Valuing Environmental Risks: From Preference Calibration to Estimation.

Abstract

'Preference calibration' has been proposed as an approach for putting the 'fit' back into 'benefits transfer' by integrating summary measures of benefits from the literature within a specific utility function to calibrate parameters of a benefits function. What if the analyst can access complete micro data sets and macro point estimates – how does one consistently use this wealth of information? This paper draws on advances in micro-econometrics to propose a method of moments approach to estimate parameters of benefits function using multiple data sources on values for changes in environmental health risks. In addition to statistical efficiency, bias reduction and parameter identification, a generalized method of moments approach avoids the challenge of specifying a joint likelihood function in combined estimation of this type. As a 'proof of concept' of our methodology, we present two case studies – a simple single equation, single parameter estimation using a meta-data set on values for acute morbidity, and a three equation, three parameter example using three different unequal sized samples of labor supply, hedonic wages, and contingent valuation data on values for mortality risk changes.