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1997 Progress Report: Comparative Studies of Approaches to Eliciting Economic Values
EPA Grant Number: R824698Title: Comparative Studies of Approaches to Eliciting Economic Values
Investigators: Carson, Richard T. , Groves, Theodore , Machina, Mark J.
Institution: University of California - San Diego
EPA Project Officer: Clark, Matthew
Project Period: October 1, 1995 through September 30, 1997
Project Period Covered by this Report: October 1, 1996 through September 30, 1997
Project Amount: $265,000
RFA: Valuation and Environmental Policy (1995)
Research Category: Economics and Decision Sciences
Description:
Objective:Surveys of the public are often undertaken to help ascertain the public's preferences. If successful, this information can be an important component to determining optimal public policies and making business decisions. Often, however, survey results are dismissed, particularly by some economists who question the creditability of responses to survey questions. Essentially, the argument made is that nothing is at stake for the survey respondent in answering a question. This rather automatic dismissal seems a bit odd in light of the billions of dollars spent each year by businesses and governments to collect and analyze survey data.
From a substantive perspective, this dismissal of survey responses can be seen as inappropriate if either of two conditions hold. The first occurs if survey respondents are motivated to seriously consider the questions asked and they answer truthfully. This is the basic assumption of the other social sciences disciplines, which explains to a large degree their enthusiastic embrace of the use of survey data. The second occurs if respondents believe that governments and businesses consider their survey answers in making decisions. This would appear to be not an unreasonable assumption in a world where a frequent criticism of governments is that they pay too much attention to the public's stated preferences in surveys and that business decisions are driven largely by marketing research tests. In this situation, an economist's first reaction to a survey question with real consequences might be to argue for the strong possibility of a strategic response. The pitfall economists tend to fall into here is not in considering the possibility of strategic behavior, but rather in jumping to the conclusion that if respondents behave strategically, their answers cannot provide useful information. This is obviously not true if optimal strategic behavior coincides with truth-telling or if the influence of the strategic behavior can at least be partially unraveled. We address the issue: what is the optimal strategic response to a specific survey question?
The approach that we use is to adopt the theoretical framework of mechanism design long used in economics to formally examine the role of incentives and information. The major advantage of mechanism design theory is that it provides a consistent theoretical model for comparing a wide variety of different question formats and specific contexts in which survey questions are asked. We start by providing a formal definition of consequential and hypothetical survey questions. Economic theory provides strong predictions for optimal responses to the former but no predictions about the latter. Most, but not all, surveys generally labeled as contingent valuation or marketing surveys fall into the class of consequential surveys.
Progress Summary:The key result of this project is that the form of the optimal strategic response is context-dependent in ways that make it difficult to make any general claims about the properties of particular response elicitation format, such as a binary discrete choice question, without further specifying the context being used. It is this context-dependence that appears to give rise to a variety of conflicting claims made in the literature. Fortunately, the properties of consequential choices, at an abstract level, depend upon only a few key features. For instance, when using a binary discrete choice response format, it is straightforward to demonstrate fairly general conditions under which the optimal strategic response is truthful preference revelation if the good is a pure public good and a coercive payment mechanism is used. In contrast, it is possible to demonstrate that truthful preference revelation can never generally be the optimal response strategy to a binary discrete choice survey question involving the provision of a new private good or a pure public good with a voluntary contribution mechanism. The key features that we consider are given in Table 1 on the next page.
We believe that our results will serve several distinct purposes. First, they provide a consistent basis upon which to make predictions about the optimal response to any particular survey question. This should assist in the interpretation of existing results and provide a basis upon which to develop new experiments to help test the model. Second, the model proposed should help researchers make informed decisions about what types of survey questions should be used in different contexts. Third, because the model predicts different (specific) behavior in different situations, it calls into question many claims in the literature that particular results, such as differences between valuation estimates based upon two different survey question response formats, imply that respondents have inconsistent or non-existent preferences. Fourth, the model provides a clear linkage between observable behavior in political and private markets and responses to consequential surveys.
Future Activities:Currently, we are undertaking three activities with respect to this project. First, we are refining the basic theoretical model. Second, we are using the model to analyze specific situations of particular interest to environmental valuation. Third, we have begun to compare systematically the model's predictions to empirical tests appearing in the existing literature.
| Feature | Specific Cases |
| Changes in choice set | Strict expansion, strict reduction, and strict alternation |
| Types of goods | Pure public, quasi-public, and private |
| Payment mechanisms | Coercive and voluntary |
| Uncertainty | Cost and Benefit |
| Perceived government decision criteria | Political (plurality), effeciency (Pareto), and eqity |
| Response elicitation formats | Binary discrete choice, double-bounded discrete choice, multiple choice, paired-comparisons, open-ended, bidding game, and payment card |
No journal articles submitted with this report: View all 10 publications for this project
Supplemental Keywords:Economic, Social, & Behavioral Science Research Program, Scientific Discipline, RFA, decision-making, Economics & Decision Making, Ecology and Ecosystems, Economics, stakeholder, ecosystem valuation, policy analysis, preference formation, psychological attitudes, public policy, decision analysis, multi-criteria decision analysis, risk preferences, alternative compensation, environmental policy, social impact analysis, social resistance, willingness to pay, cost effectiveness, stated preference, valuing environmental quality, community involvement, public values, social psychology, valuation, compensation, environmental assets, contingent valuation, economic benefits, economic incentives, environmental values, information dissemination
Progress and Final Reports:
Original Abstract
Final Report