IDEAS home Printed from https://ideas.repec.org/a/eko/ekoeko/43_7.html
   My bibliography  Save this article

The effects of non-constant marginal utility of cost for public goods valuation

Author

Listed:
  • Wiktor Budziński

Abstract

The paper investigates the importance of the so called ‘cost damping’ effect, understood as decreasing (in absolute terms) marginal utility of cost incurred by consumers. The effect was observed in many empirical studies applying discrete choice models, however, its presence is difficult to justify in the light of neoclassical economic theory. It has been proposed that cost damping can occur due to model mis-specification in the form of not accounting for preference heterogeneity. My analysis suggest otherwise – although the strength of the effect differs with respect to the assumptions regarding the functional form of the distribution of preferences in the population, the effect itself remains statistically significant. The analysis was conducted in the context of preferences regarding public forests management programs in Poland.

Suggested Citation

  • Wiktor Budziński, 2015. "The effects of non-constant marginal utility of cost for public goods valuation," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 43.
    • Handle: RePEc:eko:ekoeko:43_7
    DOI: 10.17451/eko/43/2015/145
    as

    Download full text from publisher

    File URL: http://ekonomia.wne.uw.edu.pl/ekonomia/getFile/772
    Download Restriction: no
    File URL: https://libkey.io/10.17451/eko/43/2015/145?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Torres, Cati & Hanley, Nick & Riera, Antoni, 2011. "How wrong can you be? Implications of incorrect utility function specification for welfare measurement in choice experiments," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 111-121, July.
    2. Blayac, Thierry & Causse, Anne, 2001. "Value of travel time: a theoretical legitimization of some nonlinear representative utility in discrete choice models," Transportation Research Part B: Methodological, Elsevier, vol. 35(4), pages 391-400, May.
    3. Masiero, Lorenzo & Hensher, David A., 2010. "Analyzing loss aversion and diminishing sensitivity in a freight transport stated choice experiment," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(5), pages 349-358, June.
    4. Ferrini, Silvia & Scarpa, Riccardo, 2007. "Designs with a priori information for nonmarket valuation with choice experiments: A Monte Carlo study," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 342-363, May.
    5. Louis Anthony Cox Jr. & Weihsueh A. Chiu & David M. Hassenzahl & Daniel M. Kammen, 2000. "Response," Risk Analysis, John Wiley & Sons, vol. 20(3), pages 295-296, June.
    6. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    7. Mandel, Benedikt & Gaudry, Marc & Rothengatter, Werner, 1994. "Linear or nonlinear utility functions in logit models? The impact on German high-speed rail demand forecasts," Transportation Research Part B: Methodological, Elsevier, vol. 28(2), pages 91-101, April.
    8. Mikolaj Czajkowski & Marek Giergiczny & William H. Greene, 2014. "Learning and Fatigue Effects Revisited: Investigating the Effects of Accounting for Unobservable Preference and Scale Heterogeneity," Land Economics, University of Wisconsin Press, vol. 90(2), pages 324-351.
    9. Lucia Rotaris & Romeo Danielis & Igor Sarman & Edoardo Marcucci, 2012. "Testing for nonlinearity in the choice of a freight transport service," European Transport \ Trasporti Europei, ISTIEE, Institute for the Study of Transport within the European Economic Integration, issue 50, pages 1-4.
    10. Catalina M. Torres Figuerola & Nick Hanley & Sergio Colombo, 2011. "Incorrectly accounting for taste heterogeneity in choice experiments: Does it really matter for welfare measurement?," CRE Working Papers (Documents de treball del CRE) 2011/1, Centre de Recerca Econòmica (UIB ·"Sa Nostra").
    11. Czajkowski, Mikołaj & Bartczak, Anna & Giergiczny, Marek & Navrud, Stale & Żylicz, Tomasz, 2014. "Providing preference-based support for forest ecosystem service management," Forest Policy and Economics, Elsevier, vol. 39(C), pages 1-12.
    12. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
    13. Hoyos, David, 2010. "The state of the art of environmental valuation with discrete choice experiments," Ecological Economics, Elsevier, vol. 69(8), pages 1595-1603, June.
    14. Munger, D. & L’Ecuyer, P. & Bastin, F. & Cirillo, C. & Tuffin, B., 2012. "Estimation of the mixed logit likelihood function by randomized quasi-Monte Carlo," Transportation Research Part B: Methodological, Elsevier, vol. 46(2), pages 305-320.
    15. Giergiczny, Marek & Valasiuk, Sviataslau & Czajkowski, Mikolaj & De Salvo, Maria & Signorello, Giovanni, 2012. "Including cost income ratio into utility function as a way of dealing with ‘exploding’ implicit prices in mixed logit models," Journal of Forest Economics, Elsevier, vol. 18(4), pages 370-380.
    16. Andrew Daly & Stephane Hess & Kenneth Train, 2012. "Assuring finite moments for willingness to pay in random coefficient models," Transportation, Springer, vol. 39(1), pages 19-31, January.
    17. Mabit, Stefan L. & Rich, Jeppe & Burge, Peter & Potoglou, Dimitris, 2013. "Valuation of travel time for international long-distance travel – results from the Fehmarn Belt stated choice experiment," Journal of Transport Geography, Elsevier, vol. 33(C), pages 153-161.
    18. Stathopoulos, Amanda & Hess, Stephane, 2012. "Revisiting reference point formation, gains–losses asymmetry and non-linear sensitivities with an emphasis on attribute specific treatment," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(10), pages 1673-1689.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert J. Johnston & Kevin J. Boyle & Wiktor (Vic) Adamowicz & Jeff Bennett & Roy Brouwer & Trudy Ann Cameron & W. Michael Hanemann & Nick Hanley & Mandy Ryan & Riccardo Scarpa & Roger Tourangeau & Ch, 2017. "Contemporary Guidance for Stated Preference Studies," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(2), pages 319-405.
    2. Giergiczny, Marek & Czajkowski, Mikołaj & Żylicz, Tomasz & Angelstam, Per, 2015. "Choice experiment assessment of public preferences for forest structural attributes," Ecological Economics, Elsevier, vol. 119(C), pages 8-23.
    3. Mikołaj Czajkowski & Wiktor Budziński & Danny Campbell & Marek Giergiczny & Nick Hanley, 2017. "Spatial Heterogeneity of Willingness to Pay for Forest Management," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(3), pages 705-727, November.
    4. Mariel, Petr & Artabe, Alaitz, 2020. "Interpreting correlated random parameters in choice experiments," Journal of Environmental Economics and Management, Elsevier, vol. 103(C).
    5. Amanda Stathopoulos & Stephane Hess, 2011. "Referencing, Gains-Losses Asymmetry And Non-Linear Sensitivities In Commuter Decisions: One Size Does Not Fit All!," Working Papers 0511, CREI Università degli Studi Roma Tre, revised 2011.
    6. Stathopoulos, Amanda & Hess, Stephane, 2012. "Revisiting reference point formation, gains–losses asymmetry and non-linear sensitivities with an emphasis on attribute specific treatment," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(10), pages 1673-1689.
    7. de Ayala, Amaia & Hoyos, David & Mariel, Petr, 2015. "Suitability of discrete choice experiments for landscape management under the European Landscape Convention," Journal of Forest Economics, Elsevier, vol. 21(2), pages 79-96.
    8. Cranford, Matthew & Mourato, Susana, 2014. "Credit-Based Payments for Ecosystem Services: Evidence from a Choice Experiment in Ecuador," World Development, Elsevier, vol. 64(C), pages 503-520.
    9. Czajkowski, Mikołaj & Bartczak, Anna & Giergiczny, Marek & Navrud, Stale & Żylicz, Tomasz, 2014. "Providing preference-based support for forest ecosystem service management," Forest Policy and Economics, Elsevier, vol. 39(C), pages 1-12.
    10. Wiktor Budziński & Danny Campbell & Mikołaj Czajkowski & Urška Demšar & Nick Hanley, 2018. "Using Geographically Weighted Choice Models to Account for the Spatial Heterogeneity of Preferences," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(3), pages 606-626, September.
    11. Nannan Kang & Erda Wang & Yang Yu, 2019. "Valuing forest park attributes by giving consideration to the tourist satisfaction," Tourism Economics, , vol. 25(5), pages 711-733, August.
    12. Weller, Priska & Elsasser, Peter, 2018. "Preferences for forest structural attributes in Germany – Evidence from a choice experiment," Forest Policy and Economics, Elsevier, vol. 93(C), pages 1-9.
    13. Krucien, Nicolas & Ryan, Mandy & Hermens, Frouke, 2017. "Visual attention in multi-attributes choices: What can eye-tracking tell us?," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 251-267.
    14. Mariel, Petr & Ayala, Amaya de & Hoyos, David & Abdullah, Sabah, 2013. "Selecting random parameters in discrete choice experiment for environmental valuation: A simulation experiment," Journal of choice modelling, Elsevier, vol. 7(C), pages 44-57.
    15. 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.
    16. Colombo, Sergio & Christie, Michael & Hanley, Nick, 2013. "What are the consequences of ignoring attributes in choice experiments? Implications for ecosystem service valuation," Ecological Economics, Elsevier, vol. 96(C), pages 25-35.
    17. Levon Barseghyan & Francesca Molinari & Ted O'Donoghue & Joshua C. Teitelbaum, 2013. "The Nature of Risk Preferences: Evidence from Insurance Choices," American Economic Review, American Economic Association, vol. 103(6), pages 2499-2529, October.
    18. Burton, Michael P. & Rigby, Dan, 2012. "The Market for Essays," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia 152195, Australian Agricultural and Resource Economics Society.
    19. Vecchiato, D. & Tempesta, T., 2013. "Valuing the benefits of an afforestation project in a peri-urban area with choice experiments," Forest Policy and Economics, Elsevier, vol. 26(C), pages 111-120.
    20. Richard G. Newell & Juha Siikamäki, 2014. "Nudging Energy Efficiency Behavior: The Role of Information Labels," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(4), pages 555-598.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eko:ekoeko:43_7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/fesuwpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.