A two-sample test for threshold crossing latent variables with application to valuation studies

Summary.  Contingent valuation researchers are often interested in a comparison of the underlying willingness-to-pay distributions in two independent studies. Since willingness to pay is not observable, traditional testing procedures for comparing distributions cannot be applied directly. The paper proposes a permutation test for this sort of comparison. The main distinguishing characteristic of the test proposed is that it does not rely on asymptotic approximations and facilitates the introduction of covariates. The permutation test is illustrated with the case of projects of investment for the improvement of two important Brazilian river basins.