Willingness to pay to avoid arsenic-related risks: a special regressor approach

Subjective probabilities often better explain behaviours than science-based risks. Incorporating them into a behavioural model has important ramifications for environmental and health policy, but if these risks are measured with error or endogenous, then doing so leads to possible troubles in interpretation of results. Our application is to mortality risks associated with arsenic found in drinking water in various spots in the United States. The behaviour of interest is a yes/no response to a willingness to pay (WTP) question to reduce these risks. We apply the special regressor approach to handle the endogeneity and measurement error in the WTP model and find that doing so leads to different implications for policy that could be pursued to reduce the risks.