Random error in willingness to pay measurement: A multiple indicators, latent variable approach to the reliability of contingent values

The reliability of measurement refers to unsystematic error in observed responses. Investigations of the prevalence of random error in stated estimates of willingness to pay (WTP) are important to an understanding of why tests of validity in CV can fail. However, published reliability studies have tended to adopt empirical methods that have practical and conceptual limitations when applied to WTP responses. This contention is supported in a review of contingent valuation reliability studies that demonstrate important limitations of existing approaches to WTP reliability. It is argued that empirical assessments of the reliability of contingent values may be better dealt with by using multiple indicators to measure the latent WTP distribution. This latent variable approach is demonstrated with data obtained from a WTP study for stormwater pollution abatement. Attitude variables were employed as a way of assessing the reliability of open-ended WTP (with benchmarked payment cards) for stormwater pollution abatement. The results indicated that participants' decisions to pay were reliably measured, but not the magnitude of the WTP bids. This finding highlights the need to better discern what is actually being measured in VVTP studies, (C) 2003 Elsevier B.V. All rights reserved.

Moderating effect of allocentrism on the pay referent comparison-pay level satisfaction relationship

Pay referent comparisons (comparisons of one's salary to that of others) such as other-inside (salary of other people in the organisation), other-outside (the market rate), and cost-of- living, have been shown to influence pay level satisfaction. Bordia and Blau (1998) identified family as another referent that had a significant effect on pay level satisfaction in a sample of public and private sector employees in India. The finding was interpreted in view of the importance of family in collectivistic cultures. In the study reported here, the moderating influence of an individual differences variable, allocentrism-idiocentrism (the individual level conceptualisation of collectivism-individualism) on pay referent comparison-pay level satisfaction relationship was investigated. A sample of 146 employees from three public sector organisations in India participated in the study. In line with the predictions, results showed that after controlling for age, tenure, and pay level, pay referent comparisons explained more variance in pay level satisfaction for allocentrics than for idiocentrics. Family and pay level were stronger explanatory variables of pay level satisfaction for allocentrics and idiocentrics, respectively, while cost of living was a significant explanatory variable for both sub-groups.