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Discounting future payments in stated preference choice experiments

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  • Lew, Daniel K.

Abstract

When costs are presented as a series of recurring payments in stated preference choice experiment (CE) questions, how respondents discount future payments is important in explaining choices and in the measurement of the present value of willingness to pay. In this paper, alternative discounting approaches are compared to examine their effect on measuring preferences and values using data from a survey examining public preferences for the protection of an endangered species. Exponential and hyperbolic discounting assumptions lead to very similar results in terms of both model fit and welfare. All estimated models suggest future payments are discounted at a very high rate. Several factors likely influencing the magnitude of these estimated discount rates are discussed, and then an argument is made for using payment vehicles in stated preference studies that employ a single lump sum payment rather than a series of future payments.

Suggested Citation

  • Lew, Daniel K., 2018. "Discounting future payments in stated preference choice experiments," Resource and Energy Economics, Elsevier, vol. 54(C), pages 150-164.
  • Handle: RePEc:eee:resene:v:54:y:2018:i:c:p:150-164
    DOI: 10.1016/j.reseneeco.2018.09.003
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    Cited by:

    1. West, Grant H. & Snell, Heather & Kovacs, Kent & Nayga, Rodolfo M., 2020. "Estimation of the preferences for the intertemporal services from groundwater," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304220, Agricultural and Applied Economics Association.
    2. Gregory Howard & John C. Whitehead & Jacob Hochard, 2020. "Estimating Discount Rates Using Referendum-style Choice Experiments: An Analysis of Multiple Methods," Working Papers 20-01, Department of Economics, Appalachian State University.

    More about this item

    Keywords

    Choice experiment; Exponential discounting; Mixed logit; Hyperbolic discounting; Payment horizon; Attribute non-attendance;

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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