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Appropriate Dichotomous Choice Model Analysis

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3.7. Model Specification 3.7.1 CVM Model Specification Model Specification of Bivariate Dichotomous Choice Model Following Haab and McConnell ( 2002), in the double-bounded dichotomous format, individuals will be asked two respective questions that has ‘Yes’ or ‘No’ responses, where the second question involves another bid depending on the first answer. That is if the individual answers yes to the first question then he is asked about his WTP for a higher amount. If he answers no to the first question then a lower amount is presented. To be clear let’s assume the unobserved willingness to pay of the respondent j in the first question is between the lowest value and the highest value and if an individual is asked whether he/she is willing to pay amount for the conservation of lake or not. Where q=1 refers the first bid amount and if q=2 refers to the second bid. So, we will have four possible responses of individual j from his/her responses of ‘Yes’ or ’No’. 1. …show more content…

YES-YES, if the individuals response is ‘Yes’ for both the first and the second bids, > . That is the highest willingness to pay in the mind of the respondent will be between and infinity. 2. YES-NO, if the individuals response is ‘Yes’ for the first bid and ‘No’ for the second bid, > . So, the highest willingness to pay will be between and . 3. No-No, if the individual responses is ‘No’ for both first bid and second bid, < . So, the individuals highest willingness to pay will be between 0 and . No-yes 4. NO-YES, if the individual response is ‘No’ for the first bid and ‘Yes’ for the second bid, < . So, the highest willingness to pay will be between and

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