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Contingent valuation: a new perspective

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  • Felix Schlaepfer

    ()
    (Socioeconomic Institute, University of Zurich)

Abstract

After several decades of academic research on the contingent valuation (CV) method a consistent behavioral explanation of 'hypothetical bias' is still lacking. Based on evidence from economics, economic psychology and the political sciences, I propose an explanation that is based on two simple working hypotheses about respondent behaviour in contingent valuation surveys. The first hypothesis is that survey respondents are unable to form consistent preferences about unfamiliar goods unless the choice context offers reliable, informative cues that can be rationally exploited in simplified heuristics. The second hypothesis is that the probability and impact of strategic responses in dichotomous-choice questions about public goods depends on the extent to which the presented hypothetical costs differ from the actual costs. The literature on hypothetical bias is revisited in the light of these behavioral hypotheses. I find that the hypotheses are generally supported by the empirical data. Moreover, the hypotheses are able to explain several important empirical phenomena that previous research has not been able to explain. In particular, they solve the puzzle that pre-election polls, but not CV surveys, are able to predict actual referendum outcomes, and they explain why income effects on willingness to pay are lower in CV responses than in actual votes. If confirmed by further studies, the hypotheses will have important implications for future research and practice. First, the hypothetical costs presented in the dichotomous choice question should to be close enough to the actual costs to be credible to all respondents. This can be achieved by specifying the costs as a percentage (rather than absolute) change in taxes. Second, the respondents should be given the option to answer based on information about the positions of large parties and interest groups with known political orientation rather than based on the raw policy information. Theory and evidence suggest that this new survey paradigm largely eliminates the fundamental problems of the conventional stated preference methods.

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Bibliographic Info

Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0715.

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Length: 20 pages
Date of creation: Nov 2007
Date of revision:
Publication status: published in Ecological Economics 64, pp. 729-740, 2008
Handle: RePEc:soz:wpaper:0715

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Keywords: Stated preferences; incentives; information; public goods;

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References

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  3. Adrian Bruhin, 2008. "Stochastic Expected Utility and Prospect Theory in a Horse Race: A Finite Mixture Approach," SOI - Working Papers 0803, Socioeconomic Institute - University of Zurich.
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  5. Dennis Gaertner, 2007. "Why Bayes Rules: A Note on Bayesian vs. Classical Inference in Regime Switching Models," SOI - Working Papers 0719, Socioeconomic Institute - University of Zurich.
  6. Jacquemet, Nicolas & Joule, Robert-Vincent & Luchini, Stéphane & Shogren, Jason F., 2011. "Do People Always Pay Less Than They Say? Testbed Laboratory Experiments With IV and HG Values," Economics Papers from University Paris Dauphine 123456789/9717, Paris Dauphine University.
  7. Dennis Gaertner, 2007. "Monopolistic Screening under Learning By Doing," SOI - Working Papers 0718, Socioeconomic Institute - University of Zurich.
  8. J. DeShazo & Trudy Cameron & Manrique Saenz, 2009. "The Effect of Consumers’ Real-World Choice Sets on Inferences from Stated Preference Surveys," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 42(3), pages 319-343, March.
  9. Christoph Rheinberger, 2011. "A Mixed Logit Approach to Study Preferences for Safety on Alpine Roads," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(1), pages 121-146, May.
  10. Josef Falkinger, 2008. "Between Agora and Shopping Mall," SOI - Working Papers 0805, Socioeconomic Institute - University of Zurich.
  11. Marit Kragt & Jeffrey Bennett, 2012. "Attribute Framing in Choice Experiments: How Do Attribute Level Descriptions Affect Value Estimates?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 51(1), pages 43-59, January.
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  13. Dario Sacco & Armin Schmutzler, 2008. "All-Pay Auctions with Negative Prize Externalities: Theory and Experimental Evidence," SOI - Working Papers 0806, Socioeconomic Institute - University of Zurich.
  14. Sandra Hanslin, 2008. "The effect of trade openness on optimal government size under endogenous firm entry," SOI - Working Papers 0802, Socioeconomic Institute - University of Zurich.

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