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1997 Progress Report: Valuing Environmental Damages with Stated Preference Methods New Approaches that Yield Demonstrably Valid Values for Non-Priced Environmental Goods
EPA Grant Number: R824710Title: Valuing Environmental Damages with Stated Preference Methods New Approaches that Yield Demonstrably Valid Values for Non-Priced Environmental Goods
Investigators: Cummings, Ronald G. , Brewer, Paul , Osborne, Laura L. , Pate, James
Institution: Georgia State University
EPA Project Officer: Clark, Matthew
Project Period: November 1, 1995 through October 1, 1996
Project Period Covered by this Report: November 1, 1996 through October 1, 1997
Project Amount: $113,856
RFA: Valuation and Environmental Policy (1995)
Research Category: Economics and Decision Sciences
Description:
Objective:Stated preference or Contingent Valuation (CV) studies are often criticized on the grounds that responses to hypothetical willingness to pay questions may result in higher willingness to pay statements than would be observed if respondents were asked to make actual cash payments (this difference is called hypothetical bias). The objective of this project is to develop new methods for eliciting stated preferences that are demonstrably effective in eliciting unbiased responses to hypothetical questions. We developed two new designs for CV surveys, referred to as "Cheap Talk" and "Learning," and tested them for robustness. Results from over 1,500 surveys indicate that these two designs are capable of eliciting responses to hypothetical valuation questions that are indistinguishable from parallel valuation questions requiring actual payment.
Development and testing of these new survey designs drew from lessons learned in experimental economics and psychology concerning the design of valuation institutions. The Cheap Talk design introduces as part of the willingness to pay question an in-depth and candid description of the hypothetical bias encountered in CV studies. In the Learning design, respondents participate in a series of willingness to pay surveys: a hypothetical survey followed by a real survey (requiring actual cash payments) for one good, and then a final hypothetical survey for a different good. This design explores the extent to which subjects, having completed one hypothetical-then-real valuation series, will learn to anticipate a real question in responding to the hypothetical question for the second good. We might then expect responses to the second hypothetical question to be the same as if the question involved real cash payments.
Progress Summary:We conducted laboratory experiments with groups of individuals to obtain either real or hypothetical payments to non-profit organizations affecting non-priced environmental goods. Our experiments found evidence consistent with hypothetical bias, supporting previously published evidence using this methodology. The Cheap Talk and Learning Design for the hypothetical survey instrument were conducted in an effort to eliminate any differences found between responses to the surveys involving either real or hypothetical payments. In each case, we found both designs to be effective in eliminating hypothetical bias. Specifically, responses to the hypothetical questions (HQ) using either the Cheap Talk design (CTD) or Learning design (LD) were statistically indistinguishable from responses to questions involving real cash payments (RQ). These results were robust to changes in the good, changes in the survey design, and changes in the experimental design.
To the extent that these new designs can close the gap between responses to hypothetical surveys and surveys involving cash payments in a demonstrable manner, then the credibility and acceptability of environmental assessments are enhanced. The results from these experiments are expected to provide guidelines for the conduct of stated preference studies that produce valid responses to hypothetical valuation questions.
Supplemental Keywords:Economic, Social, & Behavioral Science Research Program, Scientific Discipline, RFA, Social Science, decision-making, Economics & Decision Making, Ecology and Ecosystems, Economics, public issues, ecosystem valuation, policy analysis, preference formation, psychological attitudes, public policy, dichotomous-choice, decision analysis, economic objectives, incentives, alternative compensation, environmental policy, social impact analysis, willingness to pay, cost effectiveness, stated preference, valuing environmental quality, community involvement, hypothetical bias, multi-objective decision making, public values, social psychology, stream turbidity, valuation, surveys, compensation, environmental assets, contingent valuation, economic benefits, economic incentives, environmental values
Progress and Final Reports:
Original Abstract