Effects of Cheap Talk on Consumer Willingness-to-Pay for Golden Rice

A large body of literature suggests willingness-to-pay is overstated in hypothetical valuation questions as compared to when actual payment is required. Recently, "cheap talk" has been proposed to eliminate the potential bias in hypothetical valuation questions. Cheap talk refers to process of explaining hypothetical bias to individuals prior to asking a valuation question. This study explores the effect of cheap talk in a mass mail survey using a conventional value elicitation technique. Results indicate that cheap talk was effective at reducing willingness-to-pay for most survey participants; however, consistent with previous research, cheap talk did not reduce willingness-to-pay for knowledgeable consumers.     

Strategic response: A key to understand how cheap talk works

Experimental protocols testing the effectiveness of cheap talk are numerous but have generated conflicting results. The theoretical interpretation of hypothetical bias as a strategic response according to the perceived consequence could be the missing key to understand these opposite results from the literature. Increasing evidence suggests that this bias rises from subjects’ perception of how stated preferences surveys will be used; some subjects believing that stated valuations can impact the price of the good, while others that it will influence its provision. Subjects strategically respond by adjusting their declared values accordingly. This paper reports experimental findings supporting the presence of strategic response, showing that cheap talk operates by mitigating these behaviors and potentially explaining cheap talk's heterogeneous results.     

Testing hypothetical bias in a framed field experiment

Hypothetical bias is tested based on inter- and intra-respondent comparisons of choice behavior, applying a hypothetical and real choice experiment. The inter-respondent comparison commonly applied in the environmental and agricultural economics literature consists of a control group of buyers who are asked to hypothetically choose between conventional and organic beans and an experimental group of buyers who are endowed to purchase the same beans using an identical experimental design. Hypothetical bias is tested by comparing inter- and intra-respondents’ (i) hypothetical and real choices, (ii) preference parameters of the estimated choice models related to hypothetical and real choices, and (iii) hypothetical and real willingness to pay (WTP). Choices in the experimental group are highly consistent when switching from hypothetical to real choices for this study's homegrown goods. However, after being endowed, the price sensitivity of lower income households drops, suggesting a house money effect. WTP derived from actual purchases is higher than WTP based on hypothetical choices, indicating a negative hypothetical bias, but differences are only significant in the case of the inter-respondent comparison. Actual prices paid by respondents in the field experiment appear to be considerably lower than the estimated WTP values and yield a mixed picture of hypothetical bias.     

The impact of deal‐proneness on WTP estimates in incentive‐aligned value elicitation methods

Even after controlling for hypothetical biases, some incentive‐aligned value elicitation methods still produce different willingness‐to‐pay (WTP) estimates. In this study, we compare WTP estimates from three incentive‐aligned value elicitation methods: real choice experiment (RCE), real double‐bounded dichotomous contingent valuation (RCVM), and Becker–DeGroot–Marschak auction (BDM). We find that participants’ aggressiveness in obtaining low prices (i.e., “deal‐proneness”) influences WTP estimates in the BDM auction, but not those elicited from the RCE and RCVM. The participants with higher levels of deal‐proneness tend to submit lower bids in the BDM auction. The discrepancies in WTP estimates between different incentive‐aligned procedures are narrower for participants with lower levels of deal‐proneness. Our results indicate that the bids in BDM auctions may be understated and the auction mechanism may induce the “gambling behavior” of people who are deal‐prone. That is, whether the BDM auction is truly incentive‐aligned is again called into question. We also discuss the practical implications for food retailers.     

Valuation on the Frontier: Calibrating Actual and Hypothetical Statements of Value

The lack of robust evidence showing that hypothetical behavior directly maps into real actions remains a major concern for proponents of stated preference nonmarket valuation techniques. This article explores a new statistical approach to link actual and hypothetical statements. Using willingness-to-pay field data on individual bids from sealed-bid auctions for a $350 baseball card, our results are quite promising. Estimating a stochastic frontier regression model that makes use of data that any contingent valuation survey would obtain, we derive a bid function that is not statistically different from the bid function obtained from subjects in an actual auction. If other data can be calibrated similarly, this method holds significant promise since an appropriate calibration scheme, ex ante or ex post , can be invaluable to the policy maker that desires more accurate estimates of use and nonuse values for nonmarket goods and services.     

Are Choice Experiments Incentive Compatible? A Test with Quality Differentiated Beef Steaks

This study compares hypothetical and nonhypothetical responses to choice experiment questions. We test for hypothetical bias in a choice experiment involving beef ribeye steaks with differing quality attributes. In general, hypothetical responses predicted higher probabilities of purchasing beef steaks than nonhypothetical responses. Thus, hypothetical choices overestimate total willingness-to-pay for beef steaks. However, marginal willingness-to-pay for a change in steak quality is, in general, not statistically different across hypothetical and actual payment settings.     

SUPPLY RESPONSE OF UPLAND RICE IN OGUN STATE OF NIGERIA: A PRODUCER PANEL APPROACH

Several reasons have been proposed to explain the unexpectedly low supply elasticities often found for food crops. This study is unusual in using a farmers' panel approach. This enables a distinction to be made between four different measures of response: realised output, planted hectarage, planned hectarage and ‘hypothetical’ hectarage. The results indicate that the own-price elasticities of supply are significantly positive. Planned, planted and realised responses are quite close, but are less than the hypothetical responses. The hypothetical elasticities are smaller for price falls than for price increases and they become lower as the harvesting period passes, suggesting contraction of supply of a crop when its price falls and asymmetric response among small-scale farmers.     

Producing industrial pigs in southwestern China: The rise of contract farming as a coevolutionary process

The literature on contract farming (CF) has to date focused on how outside capital uses CF to vertically integrate non-capitalist producers into agro-industrial value chains. We argue that in places where multiple dynamics of capitalist growth co-exist, CF relationships can also emerge between different types of capitalist producers that are already in capitalist production using other organizational forms. In this situation, the well-studied drivers that fuel the spread of CF become less consequential; the emergence of CF is instead more contingent on the complex interactions between producers and the specific conditions and events in the local environment. We conceptualize the emergence of this type of CF as a coevolutionary process and develop an analytical toolkit from this perspective to study the rise of CF in industrial pig farming in a Chinese county. Our analysis traces the evolution of agro-industrialization over a decade (2006–2016) and shows the emergence of CF as a coevolutionary outcome shaped by the unique biography of the contract producers, the “historical accident” of a market downturn, and the reciprocal responses between contract producers and agribusinesses.     

Testing for convergent validity between travel cost and contingent valuation estimates of recreation values in the Coorong,Australia*

A number of studies valuing recreation have shown that the travel cost method (TCM) generates higher estimates of value than the contingent valuation method (CVM), even though the latter is commonly associated with potential problems of hypothetical and strategic bias. In this study, both methods have been used to estimate the recreational values associated with the Coorong on the Murray River in south‐eastern Australia. Values per adult visitor per recreation day are estimated with the TCM at $149 and with the CVM at $116. A number of methodological and framing issues to explain these value differences are tested. In summary, while no single methodological or framing issue could be identified that would reconcile the difference between TCM and CVM values, it appears likely that there may be a combination of factors that drive the systematic variations in consumer surplus values. The evidence in this study suggests that the most important of these are likely to be the different decision points underpinning data collection and the consideration of substitute sites, strategic responses and the treatment of uncertain responses within the CVM.     

Risk Behaviours and Grazing Land Management: A Framed Field Experiment and Linkages to Range Land Condition

We use a framed field experiment considering hypothetical stocking rate decisions made by grazing enterprise managers and estimate non‐linear multinomial logit models for a range of nested non‐expected utility and expected utility models. The risk and decision‐bias parameters for five models estimated for individual responses are shown to be significantly related to land condition but in ways which suggest behavioural aspects of decision making are critical in understanding land management and stocking rate decisions. Our results show that individual heterogeneity in decision making amongst farming groups is likely to be a significant source of variation in farming intensity and technology adoption decisions. This heterogeneity does not appear to be a reflection of socio‐demographic characteristics. Furthermore, decision functions appear to be biased toward selection of simpler representative functions (e.g. Expected Utility) for sample averages. This suggests that experimental findings that Expected Utility is representative for actual decisions may be due to sample averaging rather than reflect actual behaviour.     

Contextual Framing and Monetary Incentives in Field Experiments on Risk Preferences: Evidence from German Farmers

Recent studies cast doubt on the ability of abstract experiments to predict decision‐making in the field. Thus, scholars have argued for more ‘realism’ by introducing context to field experiments. Yet, such realism may work against the induced values of monetary incentives in economic experiments. It is an open question whether contextual framing works best with or without inducing values, through methods such as the use of monetary incentives. Using a sample of 146 German farmers, we compare experimentally the predictive power of a framed lottery in an agricultural context vs. using an abstract version. For one half of the sample, lotteries are incentivised; for the other half, they are hypothetical. Although risk preferences differ between treatments, all four lottery tasks correlate poorly with farmers’ real‐world use of risk management instruments such as harvest or hail insurance. Subjects who start with an agricultural framing are willing to take significantly greater risks in the lotteries. More generally, our findings cast doubt on the ability of lottery tasks to predict risk‐taking in the field.     

Using virtual environments and agent models in multi-criteria decision-making

Decision-making is often a complex task. There may be multiple criteria to be satisfied. The consequences of the available options will have different spatial and temporal distributions affecting different population groups and different generations. Decisions are also frequently made in a social context where perceptions can be as important as facts. In this complex environment, research into decision-making has two aspects: (a) understanding the decision process and (b) assisting the decision process. This paper is based on the premise that these are closely linked and that tools are possible which both help us to understand and provide support to decision-makers. A frequently requirement is determination of the trade-offs involved in complex decision situations. These are difficult to establish. Common approaches have used both stated preference and revealed preference techniques. The latter provides a better reflection of real decisions, primarily in market conditions, but does not have the level of experimental control available in hypothetical choice situations. Experimental economics has recently emerged to try to bridge this gap by providing for control of variables within a decision context made real by salient inducements. After review of these options, and the associated literature, we propose a series of linked developments in visualisation and modelling which will support: definition of non-dominated choice sets; interactive choice experiments which encompass spatial and temporal disaggregation; agent-based models to provide social context; and, visualisation to provide a greater sense of immersion in the decision context supported by more intuitive information. We have begun the integration of the necessary software into a virtual decision environment but this paper is focused on conceptual development.     

Upzoning and value capture: How U.S. local governments use land use regulation power to create and capture value from real estate developments

The public sector can harness its authority to control land uses to secure valuable public benefits from real estate developments. This paper investigates how five major U.S. cities—Boston, Chicago, New York, San Francisco, and Seattle—are using their land use regulation powers to create and capture value for the public benefit. An analysis of the zoning and entitlement processes of the 20 largest real estate development projects in each city reveals that value has been captured from all 100 projects. Furthermore, these cities implicitly differentiated value capture into two distinct components: value creation and value capture. Among the 100 projects, cities created value for 90 projects by allowing greater density and height—a practice often referred to as “upzoning.” Distinguishing such upzoning incidences from traditional land use exaction tools is important because the added value gives local governments greater legitimacy in asking for public benefits. The experience of the five cities further revealed that value capture strategies can be customized to adapt to unique regulatory, political, and cultural contexts. Lastly, despite the fact that the majority of the upzoned projects increased density and height through project-specific negotiations, none of the cities had clear standards or evaluation frameworks for determining: how much value was created, what can be asked for in return, and who should benefit from the value captured. Cross-national scholarship on value capture can be leveraged to address these important questions.     

Testing for hypothetical bias in willingness to support a reforestation program

This study measures hypothetical bias in CVM-based estimates of willingness to support a forest protection and restoration program in Poland. It does so in two parallel ways: within- and between-subjects. To this end, participants are asked to vote in a referendum on an NGO-led reforestation project for various per-capita cost levels. They do so either directly or, as a surprise continuation, after a hypothetical analogue. Both methods deliver a similar (and substantial) level of hypothetical bias – it is slightly higher, but not significantly so, in the between-subject comparison. This suggests that hypothetical bias in this context is not primarily driven by such factors as consistency seeking or impression management.     

河南大别山区矿业开发战略选择问题讨论

本文首先阐述了研究矿业开发战略的一般理论,在此基础上再讨论实际问题.本区廉价资源有优势而基础资源无优势,开发基础资源、使矿业发挥基础产业作用、带动下游产业、建设支柱产业群的战略缺乏物质基础;利用区位优势、开发廉价资源、使矿业成为积累资金、支持经济发展的起步产业,是较为现实的选择.     

Valuing seasonal climate forecasts in a state‐contingent manner

We applied state‐contingent theory to climate uncertainty at a farm level to assess the value of seasonal climate forecasts in the Central West region of NSW. We find that modelling uncertainty in a state‐contingent manner results in a lower estimate of forecast value than the typical expected value approach. We attribute this finding to a more conservative long‐term farm plan in the discrete stochastic programming (DSP) model, which is better balanced for climate uncertainty. Hence, a climate forecast, even though it still revises probabilities held by farmers, does not call forth such large changes in farm plans and associated farm incomes. We then use the DSP model to assess how attributes of a hypothetical forecasting system, particularly its skill and timeliness, as well as attributes of the decision environment, influence its value. Lastly, we assess the value of current operational forecast systems and show that the value derived from seasonal climate forecasts is relatively limited in the case study region largely because of low skill embodied in forecasts at the time when major farm decisions are being made.     

Optimising adaptation decisions in macadamia production using contingent claim valuation

Altering production systems and land management of tree crops is a costly, disruptive and ultimately irreversible decision. Using traditional valuation methods to appraise long‐term land management outcomes ignores the full impact of irreversible or delayed decisions. We employ a variant of the real options decision process to examine uncertainties around climatic effects on macadamia growers and the explicit decision to adapt via cultivar replacement. We examine the trade‐offs between the timing of the decision to replace macadamia cultivars by considering both the value of flexibility as well as the value of new information that can be used to resolve uncertainty. We compare the relative responses that generate the most value for growers across four geographical locations. We show that simple switching decisions using traditional valuation methods are found to be suboptimal and initiate poor decisions, potentially undermining adaptation efforts. As the rate of orchard degradation increases, the need to transition to higher‐yielding cultivars becomes greater, especially for Hawaii, California and Australia where gross margins are leaner. Investment decisions are thus highly dependent on both local conditions and the economic structure of existing production systems.     

Agri‐environmental auctions for phosphorus load reduction: experiences from a Finnish pilot

We examine environmental auctions on working agricultural lands. We organized a discriminatory auction where farmers were asked to make bids on spreading gypsum on their fields to reduce phosphorus loads to surface waters. The parcel‐specific bids were ranked based on their load reduction–compensation ratios. To assess load reductions, we built an environmental benefit index (EBI) based on three factors: P‐status of the soil (phosphorus available for crops), field slope and location with respect to waterways. As the per tonne price of gypsum delivery from the factory was higher for small quantities, the auction format allowed bundling of field parcels to reduce transportation costs. We evaluate auction's ability to target the environmental (or abatement) measures to field parcels with the highest load reduction potential and analyse the economic efficiency of the auction by comparing the pilot auction with simulated bidding behaviour and with hypothetical flat rate payment schemes. The pilot auction targeted the environmental measures effectively. It was also more efficient than a flat rate payment, even when the flat rate scheme was combined with an EBI eligibility criterion.     

Contrasting two approaches in real options valuation: Contingent claims versus dynamic programming

This paper compares two well-known approaches for valuing a risky investment using real options theory: contingent claims (CC) with risk neutral valuation and dynamic programming (DP) using a constant risk adjusted discount rate. Both approaches have been used in valuing forest assets. A proof is presented which shows that, except under certain restrictive assumptions, DP using a constant discount rate and CC will not yield the same answers for investment value. A few special cases are considered for which CC and DP with a constant discount rate are consistent with each other. An optimal tree harvesting example is presented to illustrate that the values obtained using the two approaches can differ when we depart from these special cases to a more realistic scenario. We conclude that for real options problems the CC approach is preferred when data exists (such as futures prices) that allow the estimation of the market price of risk or convenience yield. Even when such data do not exist we argue that the CC approach is preferred as it has the advantage of allowing the individual specification of the prices of different sources of risk.