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Endogeneity of Risk Perceptions in Averting Behavior Models

Author

Listed:
  • Patrick Lloyd-Smith

    (University of Alberta)

  • Craig Schram

    (University of Alberta)

  • Wiktor Adamowicz

    (University of Alberta)

  • Diane Dupont

    (Brock University)

Abstract

This paper examines the relationship between averting expenditures / choices and perceived health risks. Models in the literature often employ risk perceptions as explanatory variables without addressing the potential endogeneity of the perceived risk. We examine the implications of ignoring endogeneity in this context, using an application to both drinking water choices and expenditures and perceived health risks. Our data are from an Internet-based cross-Canada survey that employs a novel interactive risk ladder to elicit mortality risk perceptions relating to water. We employ two fundamentally different methods to assess the impact of risk perceptions on behavior: an analysis of expenditures on alternate water sources and a model of proportional choice of water sources. Results suggest the presence of averting behavior with respect to perceived mortality risks and that the estimated effect of water risks is greater than 3 times higher when using approaches that correct for endogeneity compared to models that do not.

Suggested Citation

  • Patrick Lloyd-Smith & Craig Schram & Wiktor Adamowicz & Diane Dupont, 2018. "Endogeneity of Risk Perceptions in Averting Behavior Models," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(2), pages 217-246, February.
    • Handle: RePEc:kap:enreec:v:69:y:2018:i:2:d:10.1007_s10640-016-0075-6
    DOI: 10.1007/s10640-016-0075-6
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    3. Bruno Lanz & Allan Provins, 2014. "The demand for tap water quality: Survey evidence on water hardness and aesthetic quality," CIES Research Paper series 23-2014, Centre for International Environmental Studies, The Graduate Institute.
    4. Marta Suárez-Varela & Ariel Dinar, 2020. "The Role of Curtailment Versus Efficiency on Spillovers Among Pro-Environmental Behaviors: Evidence from Two Towns in Granada, Spain," Sustainability, MDPI, vol. 12(3), pages 1-24, January.
    5. Jichun Zhao & Hongbiao Wang & Jianxin Guo, 2021. "Smog Avoidance Investment While Improving Air Quality: Health Demand or Risk Aversion? Evidence from Cities in China," IJERPH, MDPI, vol. 18(15), pages 1-21, July.
    6. Slunge, Daniel & Sterner, Thomas & Adamowicz, Wiktor, 2019. "Valuation when baselines are changing: Tick-borne disease risk and recreational choice," Resource and Energy Economics, Elsevier, vol. 58(C).
    7. Hanna Freudenreich & Sindu W. Kebede, 2022. "Experience of shocks, household wealth and expectation formation: Evidence from smallholder farmers in Kenya," Agricultural Economics, International Association of Agricultural Economists, vol. 53(5), pages 756-774, September.
    8. Alfred Appiah & Wiktor Adamowicz & Patrick Lloyd-Smith & Diane Dupont, 2019. "Reliability of Drinking Water: Risk Perceptions and Economic Value," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-27, April.
    9. Samrat B. Kunwar & Alok K. Bohara, 2019. "Water Quality Avoidance Behavior: Bridging the Gap between Perception and Reality," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-33, November.
    10. Zhengtao Li & Henk Folmer, 2023. "Air pollution and perception-based averting behaviour in the Jinchuan mining area, China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 70(2), pages 477-505, April.
    11. Jagoda Adamus, 2023. "How Much Are Public Spaces Worth? Non-Market Valuation Methods in Valuing Public Spaces," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 66-89.
    12. James I. Price & Patrick R. Lloyd-Smith & Diane P. Dupont & Wiktor L. Adamowicz, 2019. "Floods and Water Service Disruptions: Eliciting Willingness-to-Pay for Public Utility Pricing and Infrastructure Decisions," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-20, April.
    13. Landry, Craig & Syphers, Steven & Keeler, Andrew, 2022. "Preferences for Post-storm Coastal Adaptation," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322385, Agricultural and Applied Economics Association.

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    More about this item

    Keywords

    Averting behavior; Risk perceptions; Water quality; Human health; Latent class models; Expenditure model; Endogeneity;
    All these keywords.

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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