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Gain and loss of money in a choice experiment. The impact of financial loss aversion and risk preferences on willingness to pay to avoid renewable energy externalities

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  • Bartczak, Anna
  • Chilton, Susan
  • Czajkowski, Mikołaj
  • Meyerhoff, Jürgen

Abstract

We examine how the direction of price changes affects the value people place on avoiding renewable energy externalities in Poland. Additionally, we investigate the influence of individuals' financial loss aversion and financial risk preferences on this valuation. In our study we conduct a choice experiment survey in which respondents' choices indicate the value they place on avoiding wind, solar, and biomass externalities. We combine this survey with a financial lottery choice task that elicits the respondents' risk preferences and degree of loss aversion. In the choice experiment we use both increases and decreases in electricity bills to depict the uncertain effect of new sources of energy generation on the current price level. This design allows us to investigate if obtained values are independent of the payment mechanism. In the analyzed context, our results indicate that marginal utility of money seems to be lower with a rebate on the energy bill than with a surcharge. We find that financial risk preferences affect people's choices both in a case of a surcharge and a rebate, while loss aversion for money affects them just in the case of a rebate. Loss aversion for money seems to not be present during a buying process. The results indicate that the more risk seeking people are in a financial domain the more they are willing to pay for proposed changes in renewable energy development, at the same time people who are more risk averse require less compensation before they accept externalities from renewable electricity production. Moreover, a higher compensation is required by people who are more loss averse with regard to money.

Suggested Citation

  • Bartczak, Anna & Chilton, Susan & Czajkowski, Mikołaj & Meyerhoff, Jürgen, 2017. "Gain and loss of money in a choice experiment. The impact of financial loss aversion and risk preferences on willingness to pay to avoid renewable energy externalities," Energy Economics, Elsevier, vol. 65(C), pages 326-334.
  • Handle: RePEc:eee:eneeco:v:65:y:2017:i:c:p:326-334
    DOI: 10.1016/j.eneco.2017.04.020
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    1. repec:gam:jeners:v:11:y:2018:i:1:p:140-:d:125734 is not listed on IDEAS
    2. Riccardo Scarpa & Cristiano Franceschinis & Mara Thiene, 2017. "A Monte Carlo Evaluation of the Logit-Mixed Logit under Asymmetry and Multimodality," Working Papers in Economics 17/23, University of Waikato.
    3. Michela Faccioli & Mikołaj Czajkowski & Klaus Glenk & Julia Martin-Ortega, 2018. "Environmental attitudes and place identity as simultaneous determinants of preferences for environmental goods," Working Papers 2018-08, Faculty of Economic Sciences, University of Warsaw.
    4. Mikołaj Czajkowski & Tomasz Gajderowicz & Marek Giergiczny & Gabriela Grotkowska & Urszula Sztandar-Sztanderska, 2017. "Choosing the future: economic preferences for higher education using discrete choice experiment method," Working Papers 2017-16, Faculty of Economic Sciences, University of Warsaw.

    More about this item

    Keywords

    Choice experiment; Externalities of renewable energy; Loss aversion; Lottery experiment; Marginal utility of money; Risk preferences;

    JEL classification:

    • P18 - Economic Systems - - Capitalist Systems - - - Energy; Environment
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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