Using bivariate approach to estimate WTP for green electricity

Overview

EU Directive 2009/72/CE imposes to the European Countries environmental and energy targets. The Italian goal is to attain a 17% share in electricity production from renewable energy sources (RES) by 2020. This imposes an extra cost on the consumers, consequently it is interesting to estimate the consumer’s willingness to pay (WTP) for this target.
Consistently with this Italian energy scenario the primary purpose of this study is to estimate consumers’ WTP for the development of the “green electricity” in Italy using double bound method and DeShazo (2002) theoretical framework.

Methods

The bivariate model for discrete dependent variables is a two equations system:
Y_1i = x'_1iβ₁+ε_1i
Y_2i = x'_2iβ₂+ε_2i
the dichotomous dependent variable are y_1i =1 if Y_1i > 0 and y_2i =1 if Y_2i > 0; x-1 are vectors of exogenous variables while β_1,2 are unknown parameters vectors. Finally ε_1,2 are error terms with zero means and variance σ₁₂ σ₂₂, marginal distribution G₁, G₂ and joint distribution F. In the contingent valuation usual assumption are: y_1i =1 if Y_1i > bid1 and y_2i =1 if Y_2i > bid2 and F is a bivariat normal (probit model) with mean = 0, unit variances and covariance among residuals. (Genius, Strazzera, 2005). DeShazo theoretical framework argues that strategic behavior, that affect double bound method, only exist for the respondents who answer “yes” to the first price offer; consequently only ascending sequences are susceptible to strategic behavior (framing effect). In DeShazo framework the bivariate model for descending sequences is as eq(1) while for individuals facing an upward sequences only the first response is considered as a single bound elicitation.

Results

This study is founded on one national survey made in June 2008 with more than  2000 “Web” interview (CAWI). The stratified samples are representative of 46.8 million individuals, residents of Italy. When the respondents faced first bid we notice that 32% of them are willing to pay a 8 euro increase in the cost of electricity bill, 29% would accept to pay 13 €, 25% have a WTP equal to 20 euro per a bill while 20% willing to pay 40 €. If the first answer is yes, then respondents are faced with upward order, 19% of respondents are willing to pay more than 8€; 20% are willing to pay more than 13€, 14% are willing to pay more than 20€ and 11% of them are willing to pay more than 40€. Homever if the first answer is no, then the respondents are faced with downward order and 13% of respondents are willing to pay less than 8€, 19% less than 13€, 19% less than 20€ and 23% are willing to pay less than 40€. Finally, firstly econometric analisys confirm that exist a substantial willingness of consumers to support green electricity production in Italy.