Using Choice Experiments to Value the Environment

This paper we outline the “choice experiment” approach to environmental valuation. This approach has its roots in Lancaster's characteristics theory of value, in random utility theory and in experimental design. We show how marginal values for the attributes of environmental assets, such as forests and rivers, can be estimated from pair-wise choices, as well as the value of the environmental asset as a whole. These choice pairs are designed so as to allow efficient statistical estimation of the underlying utility function, and to minimise required sample size. Choice experiments have important advantages over other environmental valuation methods, such as contingent valuation and travel cost-type models, although many design issues remain unresolved. Applications to environmental issues have so far been relatively limited. We illustrate the use of choice experiments with reference to a recent UK study on public preferences for alternative forest landscapes. This study allows us to perform a convergent validity test on the choice experiment estimates of willingness to pay.     

The effect of individual ‘ability to choose’ (scale heterogeneity) on the valuation of environmental goods

Environmental valuation methods, such as choice experiments, are increasingly being used to value complex and often unfamiliar environmental goods. A potential risk is that some survey respondents may not be capable of developing and expressing preferences for such goods. The noise from these individuals may then conceal the well-defined preferences of other respondents and affect valuation estimates. We address this problem by estimating a range of models that accounts for scale heterogeneity (which we interpret as a respondent's ability to choose: ATC) and taste heterogeneity. These models are applied to two case studies: amenity from coastal defence and biodiversity. In both case studies, model fit was improved in a scale-heterogeneity multinomial-logit (S-MNL) model (compared to a standard MNL model) suggesting the accounting for ATC (scale heterogeneity) improved preference revelation. A mixed multinomial-logit (MIXL) model outperformed the S-MNL model suggesting that accounting for taste heterogeneity was also important. However, a generalised multinomial-logit (G-MNL) model improved model fit over the MIXL model only for the biodiversity data suggesting that for these data both taste heterogeneity and ATC were important. We conclude that accounting for ATC can improve the reliability and robustness of the results when valuing complex or unfamiliar environmental goods.     

Estimating Recreation Preferences Using Hedonic Travel Cost and Random Utility Models

Over the last decade, several authors have questioned thevalidity of the hedonic travel cost model, arguing instead that the random utility model is a superior method forvaluing recreational site attributes. This paper demonstrates that the two methods emanate from a similar utilitytheoretic framework; yet in practice these methods differ in the assumptions made in their application.Constraining the underlying utility functions to be consistent, both models are applied to the valuation ofrecreational site attributes in the Southeastern United States. The way in which each method estimates preferencesfor site attributes is shown to depend critically on the method and the functional form of theunderlying utility function.     

Modelling and mapping spatial heterogeneity in forest recreation services

Modelling and spatial mapping of recreation services require attention to both demand and supply factors. This paper combines recreational choice modelling and economic valuation with GIS based techniques to allow an assessment of the spatial diversity of the value of forest recreation services. The data for the analysis is a national study of the car borne recreational use of Danish forest sites. A random utility framework is used and a comparison between the standard fixed coefficient model and a mixed logit model is made. The results show that the different specifications of the random utility models reveal similar preferences for the measured forest attributes in terms of sign and magnitude. The spatial predictions, however, reveal a considerable difference in the spatial pattern of economic benefits from recreation between the two models. These results have implications for current ecosystem service mapping initiatives as they emphasise the need to account for spatial heterogeneity in preferences, and aggregate demand and environmental attributes and infrastructure.     

Dynamic sorting in durable goods markets with buyer heterogeneity

In a competitive dynamic durable good market where sellers have private information about quality, I identify certain inefficiencies that arise due to heterogeneity in buyers' valuations. Even if the market induces dynamic sorting among sellers and all goods are eventually traded, inefficiency can arise because high valuation buyers buy early when low‐quality goods are sold, while high‐quality goods are allocated to low valuation buyers that buy later. This misallocation adds to the inefficiency caused by delay in trading. Under certain circumstances, high‐quality goods may never be traded as in a static market.     

A comparative study of environmental amenity valuations

The paper reports on a comparative study of direct and indirect approaches to valuing environmental amenities (i.e., public goods), specifically, air quality in terms of its human health effects. The application of three indirect valuation methods (via market goods) is reported here: the health production method, a consumer preferences (for nonmarket goods) model, and the cost of illness method. The first and second methods are (economic) behavior-based approaches where willingness to pay for an environmental good is derived by exploiting relationships in consumption between the public good and market good(s). The third method is based on a physical relationship—a dose-response function—between the environmental good and health. The direct valuation approach encompassed three contingent valuation elicitation formats: open-ended, modified iterative bidding game, and referenda-style binary choice. The application of all four methods was based on data from a survey of a large, stratified sample of households from the Haifa metropolitan area in northern Israel. The estimates of welfare change derived by the various methods are discussed and compared.     

The role of risk aversion in public goods dilemmas with environmental uncertainty: an experimental analysis

The purpose of this study is to extend earlier research on environmental uncertainty in public goods dilemmas. The present paper reports the results of an experiment designed to examine the effect of risk aversion on public goods provision. A von Neumann–Morgenstern utility function with constant coefficient of relative risk aversion is used to investigate the impact of risk attitudes within a threshold public goods environment. The outcome of the threshold public goods experiment shows that subjects are indifferent to the changes in environmental conditions. Additionally, the analysis indicates that risk aversion is a significant determinant of voluntary public goods contribution level.     

The Effects of Changing Cost Vectors on Choices and Scale Heterogeneity

Choice Experiments (CE) are widely used to estimate the values of changes in non-market goods and services. A cost attribute is typically included in a CE questionnaire to enable the estimation of monetary values for changes in the non-market attributes presented. Notwithstanding the central importance of the cost attribute, relatively little research has been undertaken on the impacts of varying cost attribute levels on value estimates, or on individual heterogeneity. In this paper, I present results from mixed logit and generalised mixed logit models that account for unobserved idiosyncratic preference and scale heterogeneity. Respondents are found to anchor their choices on the relative cost levels presented in the survey with results suggesting that people are more sensitive to relative rather than absolute cost vectors. However, the higher cost levels do not lead to significantly higher value estimates, partly because of observed preference heterogeneity towards the environmental attributes. An important observation is that scale heterogeneity is important: accounting for scale— as well as preference—heterogeneity in the generalised mixed logit model leads to significantly improved model fit. The results indicate significant unobserved error variance across respondents, unrelated to whether a high or low cost vector is used.     

Altruism and the Economic Values of Environmental and Social Policies

Altruism is a type of non-use value which can have different definitions depending on the type of goods entering the utility function of the altruists and their expectations about the contributions of others. The purpose of this paper is to measure the trade-offs between different types of altruist values originating from social and environmental policies. Environmental policies are concerned with reducing health effects from a power plant while social policies involve both the attainment of public facilities for education and leisure and an increase in the income of the affected population. The empirical application utilizes a choice experiment technique which allows for valuation of multiple goods. Health effects are decomposed into the values of the risk of becoming ill, the duration of the episodes and the limitations imposed by illness. Altruist values are elicited from a population that is not affected by pollution. Results show that altruism is significant for policies directed to reducing health effects and improving the income level of the affected population, whereas there is egoism for a policy aimed at improving public facilities in the polluted suburb. The value of altruism is significantly influenced by the expectations of net benefits to be received by the affected population.     

Scale-perception bias in the valuation of environmental risks

The valuation of environmental risks is commonly approached with the utilization of stated preference methods such as contingent valuation. In these methods, money is utilized as the scale that reflects the individual's underlying utility function. However, this scale can vary across individuals due to different perceptions on what are the right or appropriate bounds for Willingness To Pay (WTP). In this article, we test for scale-perception bias and propose a correction method based on the utilization of anchoring vignettes that define different degrees of preference for the nonmarket good. The proposed method is applied to study the commonly found anomaly ‘probability neglect’, which is defined by the insensitivity to the probability levels in the valuation of environmental risks. The results show that probability neglect disappears when WTP responses are corrected for self-perception bias through the utilization of the anchoring vignettes approach.     

Fairness in the contingent valuation of environmental public goods: attitude toward paying for environmental improvements at two levels of scope

Respondents to contingent valuation (CV) surveys give a variety of reasons for not wanting to pay money. This variability is likely to reflect people's attitudes toward paying for the public good change, their attitudes toward paying for public goods in general, and a component that is independent of these attitudes but unique to particular beliefs about paying (e.g. ‘I can't afford to pay’). Negative attitudes toward paying can contribute to an apparent insensitivity to different levels of the same public good. In a telephone survey, northern Wisconsin property owners were asked about their WTP for four environmental public goods (biodiversity, Indian spearfishing, water quality, and wolves) at two levels of scope (part and whole). For water quality and spearfishing, the part was a chain of lakes that was geographically nested within a larger region of lakes. Similarly, the biodiversity whole represented a region comprising the smaller level of the public good. The scope conditions for wolves were quantitatively nested levels of returning 300 and 800 wolves to northern Wisconsin. Respondents’ beliefs about paying for each public good and level of scope were measured in order to test their generality across the different public goods and levels of scope. Negative attitudes toward paying that are general across public goods place restrictions on the use of CV for environmental public goods. However, negative attitudes that are tied to specific environmental public goods suggest that the valuation method might be difficult to implement in these cases only. Moreover, negative attitudes toward paying that are either general or specific may contribute to perfect embedding when they are expressed across different levels of scope for the same public good. Respondents' beliefs about paying for each public good were associated with an attitude toward paying for the respective good and an attitude toward paying for public goods in general at both levels of scope. The general attitude was more explanatory of beliefs about paying for wolf reintroduction and spearfishing than were the specific attitudes. The distribution of beliefs was sensitive to the type of good being valued, but less so to the scope of the public good change. Contingent valuation practitioners should seek improvements in respondents' perceptions of the fairness of the valuation process in order to facilitate citizens' involvement in decisions about environmental public goods. Avenues for future research are proposed and discussed.     

Exploring heterogeneity in the value of a statistical life: Cause of death v. risk perceptions

Most current environmental policy analyses use Value of a Statistical Life (VSL) figures inferred from workplace safety and traffic accident contexts to compute the benefits of environmental programs that avoid premature deaths. There is considerable debate about the appropriateness of this practice, in part because the effect of cause of death may be partly confounded with latency, initial risks, and competing risks. Preference for reducing risks can be also affected by individual-assessed risk attributes that are rarely controlled in valuation studies. This paper explores reasons for differences in preferences for mortality risk reductions (if any), and establishes the magnitude of the effects of such risk attributes as compared to other sources of VSL heterogeneity. In our conjoint choice experiments, cause of death, the size of the risk reduction, and latency, the “price” of the risk reduction and the mode of delivery of the risk reduction are explicit attributes of the alternatives to be examined by the respondent. Our statistical models also control for actual and perceived exposure to risks, initial risks, risk attributes such as dread, and sensitivity to and controllability of specific risks. We find that there is significant heterogeneity in the valuation of mortality risks and thus in the VSL. The VSL increases with dread, exposure to risk, and the respondents' assessments of the baseline risks. It is higher when the risk reduction is delivered by a public program, and increases with the effectiveness rating assigned by the respondent to the mode of the risk reduction. Even when we control explicitly for all of these factors, the cause of death per se accounts for a large portion of the VSL. All else the same, the fact that the cause of the death is “cancer” results in a VSL that is about one million euro above the amount predicted by dread, exposure and other risk perception variables. The VSL in the road safety context is about one million euro less than what is predicted by dread, exposure, or beliefs compared to VSL for the respiratory risk context. The effect of cause of death is thus as large as the effect of other sources of VSL heterogeneity. Our respondents do not seem to discount future risks.     

公共物品自发供给与个体的偏好异质性效应分析

考察一期同时行动时,个体的偏好差异对公共物品自发供给的影响。模型在对数柯布-道格拉斯效用函数的基础上,设定了反映偏好(偏好差异量)程度的参数,分析个体们的总收入在未达到和越过公共物品生产的最小捐赠水平两种均衡状态下,个体的最佳决策及偏好异质性效应。研究结果表明:个体的偏好差异对公共物品产出的作用依赖于成员们的收入预算开支与公共物品固定成本的比较,“U”型曲线之说不合适。     

Ex ante valuation of atmospheric visibility

In a world incomplete markets for environmental goods, ex ante planned expenditures rather than ex post realized outcomes explain the values which individuals attach to these goods. We use the distance function to develop restrictions from a model of ex ante consumer behaviour involving these goods. A Contigent valuation approach is then employed to estimate policy-relavant components of the ex ante economic values that recreationists attach to differing subjective probabilities of alternative atmospheric visibility levels at a wilderness location and at an urban location in Oregon. Marginal valuations of probability changes are similar at the two sites. Marginal rates of time preference for resolving uncertainities vary between 10 and 50% and are inversely related to education. Existence value averages 10% of total value, and evidence is mixed that site-specific value act as surrogates for general environmental preferences.     

Trading Taxes vs. Paying Taxes to Value and Finance Public Environmental Goods

The potential sensitivity of environmentalresource valuation to payment vehicles is ofinterest to researchers and decision-makersinvolved in estimating and applying thesenumbers. A conceptual model is developed whichprovides insight into how the different paymentvehicles of a special tax and a taxreallocation affects the willingness to pay(WTP) for environmental goods. Hypothesistesting using contingent valuation datasuggests WTP with a tax reallocation is higherthan WTP with a special tax for ground waterquality protection in Georgia and Maine, USA.Technical measurement and welfare analysisimplications and limitations of valuing andfinancing public environmental goods using taxrealloactions are discussed.     

Comparing Fuzzy and Probabilistic Approaches to Preference Uncertainty in Non-Market Valuation

In seeking to value environmental amenities and public goods, individuals often have trouble trading off the (vague) good or amenity against a monetary measure. Valuation in these circumstances can best be described as fuzzy in terms of the amenity being valued, perceptions of property rights, and the numbers chosen to reflect values. In this paper, we apply fuzzy logic to contingent valuation, employing a fuzzy clustering approach for incorporating preference uncertainty obtained from a follow-up certainty confidence question. We develop a fuzzy random utility maximization (FRUM) framework where the perceived utility of each individual is fuzzy in the sense that an individual’s utility belongs to each cluster to some degree. The model is then applied to a Swedish survey that elicited residents’ willingness to pay for enhanced forest conservation and to a Canadian survey of agricultural landowners that elicited their willingness to accept compensation for a tree planting program. Both the WTP and WTA measures we obtain using the fuzzy approach are well below those obtained using standard probability methods. Based on goodness of fit measures and Monte Carlo experimentation, a case can be made for using a fuzzy preference approach for modeling preference uncertainty as opposed to incorporating respondent uncertainty within the random utility maximization framework.      

Testing structural benefit transfer: The role of income inequality

How the valuation of environmental goods is related to income is a key question for economics, but the role of income inequality is often neglected. We study how income inequality affects the international transfer of the estimated value of environmental goods from a study to a policy site—a practice called value or benefit transfer. Specifically, we apply theory-driven, structural transfer factors to test whether adjusting for income inequality affects errors made in benefit transfer, drawing on a multi-country valuation study on water quality improvement. Our convergent validity analysis shows that the structural income inequality adjustment reduces benefit transfer errors by between 1.5 and 1.8 percentage points on average across all transfers. We therefore find that adjusting for income inequality offers only a minor improvement of benefit transfers as compared to adjusting for differences in mean income. Overall, our results shed light on the potential of structural approaches to benefit transfer for environmental valuation and public policy appraisal.     

A discrete choice contingent valuation estimate of the value of Kenai King salmon

A new method for estimating the demand curve for publicly supplied goods when quantities are restricted to a few discrete levels is introduced. The method involves fitting a conditional logit model to choices from a set of survey options in which price and quantity are both varied and consumer attitudes are explicitly controlled. The estimated parameters of the valuation function serve to trace the marginal value of the good at each level of hypothetical consumption in survey data. We apply the method to the valuation of salmon on Alaska's Kenai River. We find that there is a distinct kink in the marginal valuation function and that sport fishermen may place a negative marginal value on fish permits exceeding their desired catch levels.     

On the paradoxical case of a consumer-based environmental subsidy policy

We apply an environmentally differentiated duopoly model to the analysis of environmental policy involving consumer subsidies based on the emission levels of the products consumers purchase. More specifically, we consider the environmental and welfare effects of subsidizing consumers who purchase environmentally friendly goods in the case of a partially covered market with a Cournot duopoly. We show that, paradoxically, the subsidy policy degrades the environment, and that the optimal policy depends on the degree of marginal social valuation of environmental damage. That is, if the marginal social valuation of environmental damage is larger than a certain value, a consumer-based environmental subsidy policy is not socially optimal.