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The Effects of Experience on Preferences: Theory and Empirics for Environmental Public Goods

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  • Mikolaj Czajkowski
  • Nick Hanley
  • Jacob LaRiviere

Abstract

This article develops a choice model for environmental public goods, which allows for consumers to learn about their preferences through consumption experiences. We develop a theoretical model of Bayesian updating, perform comparative statics over the model, and show how the theoretical model can be consistently incorporated into a reduced form econometric model. Our main findings are that in a random utility model (RUM) discrete choice model, a subject's scale should increase and the variability of scale should decrease with experience if subjects are Bayesians. We then estimate the model using field data regarding preferences for one particular public good, water quality. We find strong evidence that additional experience increases scale, thereby making consumer preferences more predictable from the econometrician's perspective. We find supportive but less convincing evidence that experience decreases the variability of scale across subjects.

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  • Mikolaj Czajkowski & Nick Hanley & Jacob LaRiviere, 2015. "The Effects of Experience on Preferences: Theory and Empirics for Environmental Public Goods," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 333-351.
  • Handle: RePEc:oup:ajagec:v:97:y:2015:i:1:p:333-351.
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    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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