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How to ‘Sell’ an Environmental Good: Using Labels to Investigate Scope Effects

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  • Mikołaj Czajkowski

    ()
    (Faculty of Economic Sciences, University of Warsaw)

  • Nick Hanley

    (Department of Economics, University of Stirling)

Abstract

Insufficient sensitivity to scope remains one of the pivots of criticism addressed at validity of stated preference methods. Many studies demonstrate failure of a scope test of some sort, while many others show that WTP responses are sensitive to the scope of environmental change. Despite some existing explanations and reasons for insensitivity to scope (embedding, warm glow, uncertainty over supply of a public good, awareness of all options) there seems to exist no clear conclusion on how to deal with it. The paper provides an alternative explanation for insufficient sensitivity to scope, based on redefinition of value drivers of environmental goods. In the proposed framework respondents’ WTP need not depend only on physical characteristics of a valued good but may also partly be a function of a ‘label’ under which the environmental good is ‘sold’. To investigate this problem and empirically test the hypothesis and its implications, a CE study in a biodiversity valuation setting is designed and conducted. The conceptual framework and empirical evidence provide an alternative explanation for problems with the insufficient sensitivity to scope observed in many studies. Finally, we set out some implications of the nature of labels as value drivers for the design of future valuation studies.

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File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP3.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2008-03.

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Length: 31 pages
Date of creation: Aug 2008
Date of revision:
Publication status: Published in Stirling Economics Discussion Papers, no. 2008-16
Handle: RePEc:war:wpaper:2008-03

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Keywords: scope test; embedding; warm glow; label effect; CE; CVM; biodiversity;

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References

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