Environmental and Resource Economics

, Volume 37, Issue 1, pp 181–210 | Cite as

Incentive and informational properties of preference questions

  • Richard T. Carson
  • Theodore Groves


Surveys are frequently used by businesses and governments to elicit information about the public’s preferences. They have become the most common way to gather preference information regarding goods, that are not (or are not yet) bought or sold in markets. In this paper we apply the standard neoclassical economic framework to generate predictions about how rational agents would answer such survey questions, which in turn implies how such survey data should be interpreted. In some situations, the standard economic model would be expected to have no predictive power. For situations where it does have predictive power, we compare different survey formats with respect to: (a) the information that the question itself reveals to the respondent, (b) the strategic incentives the respondent faces in answering the question, and (c) the information revealed by the respondent’s answer.


Contingent valuation Stated preference surveys Incentive compatibility 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Adamowicz W, Louviere J and Williams M (1994). Combining revealed and stated preference measures for valuing environmental amenities. J Environ Econ Manage 26: 271–292 Google Scholar
  2. Alberini A (1995). Efficiency vs. bias of willingness-to-pay estimates: bivariate and interval-data models. J Environ Econ Manage 29: 169–180 Google Scholar
  3. Alberini A, Kanninen B and Carson RT (1997). Modeling response incentive effects in dichotomous choice contingent valuation data. Land Econ 73: 309–324 Google Scholar
  4. Arrow K, Solow R, Portney PR, Leamer EE, Radner R and Schuman H (1993). Report of the NOAA panel on contingent valuation. Federal Register 58: 4601–4614 Google Scholar
  5. Bateman IJ, Langford IH, Turner RK and Willis KG (1995). Elicitation and truncation effects in contingent valuation studies. Ecol Econ 12: 161–179 Google Scholar
  6. Bateman IJ, Munro A, Rhodes B, Starmer C and Sugden R (1997). Does part-whole bias exist?: an experimental investigation. Econ J 107: 322–332 Google Scholar
  7. Bateman IJ, Carson RT, Day B, Hanemann WM, Hanley N, Hett T, Jones-Lee M, Loomes G, Mourato S, Özdemiroglu E, Pearce DW, Sugden R and Swanson J (2002). Economic valuation with stated preference techniques: a manual. Edward Elgar, Northamptonm, MA Google Scholar
  8. Becker GM, DeGroot MH and Marschak J (1964). Measuring utility by a single response sequential method. Behav Sci 9: 226–232 Google Scholar
  9. Bergstrom T, Blume L and Varian H (1986). On the private provision of public goods. J Public Econ 29: 2–49 Google Scholar
  10. Bishop RC and Heberlein TA (1979). Measuring values of extra-market goods: are indirect measures biased. Am J Agric Econ 61: 926–930 Google Scholar
  11. Bishop RC, Heberlein TA (1990) The contingent valuation method. In: Johnson RL, Johnson GV (eds) Economic valuation of natural resources: issues, theory and applications. Westview Press, Boulder, COGoogle Scholar
  12. Boxall PC, Adamowicz WL, Swait J, Williams M and Louviere J (1996). A comparison of stated preference methods for environmental valuation. Ecol Econ 18: 243–253 Google Scholar
  13. Boyle KJ, Bishop RC and Welsh MP (1985). Starting point bias in contingent valuation bidding games. Land Econ 61: 188–194 Google Scholar
  14. Boyle KJ, Johnson FR, McCollum D, Desvousges WH, Dunford RW and Hudson SP (1996). Valuing public goods: discrete versus continuous contingent-valuation responses. Land Econ 72: 381–396 Google Scholar
  15. Brookshire DS, Ives BC and Schulze WD (1976). The valuation of aesthetic preferences. J Environ Econ Manag 3: 325–346 Google Scholar
  16. Burton AC, Carson KS, Chilton SM and Hutchinson WG (2003). An experimental investigation of explanations for inconsistencies in responses to second offers in double referenda. J Environ Econ Manage 46: 472–489 Google Scholar
  17. Cameron TA (1988). A new paradigm for valuing non-market goods using referendum data: maximum likelihood estimation by censored logistic regression. J Environ Econ Manage 15: 355–379 Google Scholar
  18. Cameron TA and Huppert DD (1991). OLS versus ML estimation of non-market resources values with payment card interval data. J Environ Econ Manage 17: 230–246 Google Scholar
  19. Cameron TA and Quiggin J (1994). Estimation using contingent valuation data from a ‘dichotomous choice with follow-up’ questionnaire. J Environ Econ Manage 27: 218–234 Google Scholar
  20. Carlsson F and Martinsson P (2001). Do hypothetical and actual marginal willingness to pay differ in choice experiments?: application to the valuation of the environment. J Environ Econ Manage 41: 179–192 Google Scholar
  21. Carson RT (1985) Three essays on contingent valuation. Unpublished Dissertation, University of California, BerkeleyGoogle Scholar
  22. Carson RT, Steinberg D (1990) Experimental design for discrete choice voter preference surveys. In: 1989 Proceeding of the survey methodology section of the American Statistical Association. American Statistical Association, WashingtonGoogle Scholar
  23. Carson RT, Hanemann WM, Mitchell RC (1987) The use of simulated political markets to value public goods. Discussion paper 87–7, Department of Economics, University of California, San DiegoGoogle Scholar
  24. Carson RT, Hanemann WM, Kopp RJ, Krosnick JA, Mitchell RC, Presser S, Ruud PA, Smith VK (1994) Prospective interim lost use value due to DDT and PCB contamination in the Southern California Bight. Report to National Oceanic and Atmospheric AdministrationGoogle Scholar
  25. Carson RT, Flores NE, Martin KM and Wright JL (1996). Contingent valuation and revealed preference methodologies: comparing the estimates for quasi-public goods. Land Econ 72: 80–99 Google Scholar
  26. Carson RT, Groves T, Machina MJ (1997) Stated preference questions: context and optimal response. Paper presented at the National science foundation preference elicitation symposium, University of California, BerkeleyGoogle Scholar
  27. Carson RT, Groves T, List J (2004) Probabilistic influence and supplemental benefits: a field test of the two key assumptions behind using stated preferences. Paper presented at the European association of environmental and resource economists, Budapest, JuneGoogle Scholar
  28. Champ PA and Bishop RC (2006). Is willingness to pay for a public good sensitive to the elicitation format?. Land Econ 82: 162–173 Google Scholar
  29. Champ PA, Bishop RC, Brown TC and McCollum DW (1997). Using donation mechanism to value nonuse benefits from public goods. J Environ Econ Manage 33: 151–162 Google Scholar
  30. Chapman RG and Staelin R (1982). Exploiting rank ordered choice set data within the stochastic utility model. J Market Res 19: 281–299 Google Scholar
  31. Cronin FJ (1982) Valuing nonmarket goods through contingent markets. Report to U.S. Environmental Protection Agency by Battelle Memorial Institute, Richmond, WashingtonGoogle Scholar
  32. Cummings RG and Taylor LO (1998). Does realism matter in contingent valuation surveys?. Land Econ 74: 203–215 Google Scholar
  33. Cummings RG, Harrison GW and Rutström EE (1995). Homegrown values and hypothetical surveys: is the dichotomous choice approach incentive compatible. Am Econ Rev 85: 260–266 Google Scholar
  34. Cummings RG, Elliott S, Harrison GW and Murphy J (1997). Are hypothetical referenda incentive compatible?. J Polit Econ 105: 609–621 Google Scholar
  35. Farmer MC, Randall A (1996) Referendum voting strategies and implications for follow-up open-ended responses. Paper presented at the annual U.S.D.A. W-133 meeting, Jekyll Island, GAGoogle Scholar
  36. Farquharson R (1969). Theory of voting. Yale University Press, New Haven Google Scholar
  37. Foster V, Bateman IJ and Harley D (1997). Real and hypothetical willingness to pay for environmental preservation: a non-experimental comparison. J Agric Econ 48: 123–138 Google Scholar
  38. Freeman A (1991). Indirect methods for valuing changes in environmental risks with non-expected utility preferences. J Risk Uncertain 4: 153–165 Google Scholar
  39. Gibbard A (1973). Manipulation of voting schemes: a general result. Econometrica 41: 587–601 Google Scholar
  40. Green JR and Laffont JJ (1978). A sampling approach to the free rider problem. In: Sandmo, A (eds) Essays in public economics, pp. Lexington Books, Lexington, MA Google Scholar
  41. Green DP, Jacowitz KE, Kahneman D and McFadden DL (1998). Referendum contingent valuation, anchoring, and willingness to pay for public goods. Resour Energy Econ 20: 85–116 Google Scholar
  42. Greenhalgh C (1986). Research for new product development. In: Worcester, RM and Downham, J (eds) Consumer market research handbook, pp. Amsterdam, North-Holland Google Scholar
  43. Grether DM and Plott CR (1979). Economic theory of choice and the preference reversal phenomenon. Am Econ Rev 69: 623–638 Google Scholar
  44. Groves T (1973). Incentives in teams. Econometrica 41: 617–631 Google Scholar
  45. (1987). Information, incentives and economic mechanisms: essays in honor of Leonid Hurwicz. University of Minnesota Press, Minneapolis Google Scholar
  46. Haab TC and McConnell KE (1997). Referendum models and negative willingness to pay: alternative solutions. J Environ Econ Manage 32: 251–270 Google Scholar
  47. Haab TC and McConnell KE (1998). Referendum models and economic values: theoretical, intuitive and practical bounds on willingness to pay. Land Econ 74: 216–229 Google Scholar
  48. Haab TC and McConnell KE (2002). Valuing environmental and natural resources: econometrics of non-market valuation. Edward Elgar Publishers, Northampton Google Scholar
  49. Haab TC, Huang JC and Whitehead JC (1999). Are hypothetical referenda incentive compatible?: a comment. J Polit Econ 107: 186–196 Google Scholar
  50. Hanemann WM (1984). Discrete/continuous models of consumer demand. Econometrica 52: 541–561 Google Scholar
  51. Hanemann WM (1984). Welfare evaluations in contingent valuation: experiments with discrete responses. Am J Agric Econ 66: 335–379 Google Scholar
  52. Hanemann WM (1991). Willingness to pay and willingness to accept: how much can they differ?. Am Econ Rev 81: 635–647 Google Scholar
  53. Hanemann WM and Kanninen B (1999). The statistical analysis of discrete-response. In: Bateman, I and Willis, K (eds) Valuing the environment preferences: theory and practice of the contingent valuation method in the US, EC and developing countries, pp. Oxford University Press, Oxford Google Scholar
  54. Hanemann WM, Loomis J and Kanninen B (1991). Statistical efficiency of double bounded dichotomous choice contingent valuation. Am J Agric Econ 73: 1255–1263 Google Scholar
  55. (1993). Contingent valuation: a critical assessment. Amsterdam, North-Holland Google Scholar
  56. Hausman JA and Ruud P (1987). Specifying and testing econometric models for rank-ordered data. J Economet 34: 83–104 Google Scholar
  57. Hensher DA (1994). Stated preference analysis of travel choice—the state of practice. Transportation 21: 107–133 Google Scholar
  58. Herriges JA and Shogren JF (1996). Starting point bias in dichotomous choice valuation with follow-up questioning. J Environ Econ Manage 30: 112–131 Google Scholar
  59. Hoehn J and Randall A (1987). A satisfactory benefit cost indicator from contingent valuation. J Environ Econ Manage 14: 226–247 Google Scholar
  60. Holt CA (1986). Preference reversals and the independence axiom. Am Econ Rev 76: 508–515 Google Scholar
  61. Horowitz JK (2006). The Becker-DeGroot-Marschak mechanism is not necessarily incentive compatible, even for non-random goods. Econ Lett 93: 6–11 Google Scholar
  62. Hurwicz L (1986). Incentive aspects of decentralization. In: Arrow, KJ and Intriligator, MD (eds) Handbook of mathematical economics, vol. III., pp. Amsterdam, North-Holland Google Scholar
  63. Inforsino WJ (1986). Forecasting new product sales from likelihood of purchase ratings (with discussion). Market Sci 5: 372–390 CrossRefGoogle Scholar
  64. Johannesson M, Liljas B and Johansson PO (1998). An experimental comparison of dichotomous choice contingent valuation questions and real purchase decisions. Appl Econ 30: 643–647 Google Scholar
  65. Johnson FR and Desvousges WH (1997). Estimating stated preferences with rated-pair data: environmental, health and employment effects of energy programs. J Environ Econ Manage 34: 79–99 Google Scholar
  66. Kahneman D, Slovic P and Tversky A (1982). Judgment under uncertainty: heuristics and biases. Cambridge University Press, New York Google Scholar
  67. Karni E and Safra Z (1987). Preference reversal and the observability of preferences by experimental methods. Econometrica 55: 675–685 Google Scholar
  68. Kriström B (1990). A non-parametric approach to the estimation of welfare measures in discrete response valuation studies. Land Econ 66: 135–139 Google Scholar
  69. Kriström B (1997). The practical problems of contingent valuation. In: Kopp, RJ, Pommerhene, WW and Schwartz, N (eds) Determining the value of non-marketed goods, pp. Kluwer, Boston Google Scholar
  70. Lankford RH (1985). Preferences of citizens for public expenditures on elementary and secondary education. J Econo 27: 1–20 Google Scholar
  71. Lavrakas PJ and Traugott MW (2000). Election polls, the news media and democracy. Congressional Quarterly Press, Washington Google Scholar
  72. Lohmann S (1994). Information aggregation through costly political action. Am Econ Rev 84: 518–530 Google Scholar
  73. Louviere JJ (1994). Conjoint analysis. In: Bagozzi, R (eds) Handbook of marketing research, pp. Oxford University Press, Oxford Google Scholar
  74. Louviere JJ, Hensher DA and Swait JD (2000). Stated choice methods: analysis and application. Cambridge University Press, New York Google Scholar
  75. Lunander A (1998). Inducing incentives to understate and to overstate willingness to pay within the open-ended and the dichotomous-choice elicitation format. J Environ Econ Manage 35: 88–102 Google Scholar
  76. Lupia A (1994). Shortcuts versus encyclopedias—information and voting behavior in California insurance reform elections. Am Polit Sci Rev 88: 63–76 Google Scholar
  77. Machina MJ (1995). Non-expected utility and the robustness of the classical insurance paradigm. Geneva Papers Risk Insur Theory 20: 9–50 Google Scholar
  78. Magat WA, Viscusi WK and Huber J (1988). Paired comparison and contingent valuation approaches to morbidity risk valuation. J Environ Econ Manage 15: 395–411 Google Scholar
  79. McConnell KE (1990). Models for referendum data: the structure of discrete choice models for contingent valuation. J Environ Econ Manage 18: 19–34 Google Scholar
  80. McDowell I and Newell C (1996). Measuring health: a guide to rating scales and questionnaires. Oxford University Press, New York Google Scholar
  81. McFadden D (1974). Conditional logit analysis of qualitative choice behavior. In: Zarembka, P (eds) Frontiers in econometrics, pp. Academic Press, New York Google Scholar
  82. McFadden D (1980). Econometric models for probabilistic choice among products. J Bus 53: S13–S29 Google Scholar
  83. McFadden D (1994). Contingent valuation and social choice. Am J Agric Econ 76: 689–708 Google Scholar
  84. McFadden D (1999). Rationality for economists. J Risk Uncertain 19: 73–105 Google Scholar
  85. McLeod DM and Bergland O (1999). Willingness-to-pay estimates using the double-bounded dichotomous-choice contingent valuation format: a test for validity and precision in a Bayesian framework. Land Econ 75: 115–125 Google Scholar
  86. Mitchell RC, Carson RT (1986) The use of contingent valuation data for benefit-cost analysis in water pollution control. Report to the U.S. Environmental Protection AgencyGoogle Scholar
  87. Mitchell RC and Carson RT (1989). Using surveys to value public goods: the contingent valuation method. Johns Hopkins University Press, Baltimore Google Scholar
  88. Moulin H (1994). Social choice. In: Aumann, RJ and Hart, S (eds) Handbook of game theory with economic applications, pp. North-Holland, Amsterdam Google Scholar
  89. Neil H, Cummings RG, Ganderton PT and Harrison GW (1994). Hypothetical surveys and real economic commitments. Land Econ 70: 145–154 Google Scholar
  90. Payne S (1951). The art of asking questions. Princeton University Press, Princeton Google Scholar
  91. (2006). Environmental valuation in developed countries: case studies. Edward Elgar, Cheltenham, UK Google Scholar
  92. Pearce DW and Markandya A (1989). Environmental policy benefits: monetary evaluation. Organization for Economic Cooperation and Development, Paris Google Scholar
  93. (2002). Valuing the environment in developing countries. Edward Elgar, Northampton Google Scholar
  94. Pearce DW, Atkinson G and Mourato S (2006). Cost-benefit analysis and the environment: recent developments. Organization for Economic Cooperation and Development, Paris Google Scholar
  95. Peterson GL and Brown TC (1998). Economic valuation by the method of paired comparison, with emphasis on evaluation of the transitivity axiom. Land Econ 74: 240–261 Google Scholar
  96. Popkin S (1991). The reasoning voter. University of Chicago Press, Chicago Google Scholar
  97. Posavac SS (1998). Strategic overbidding in contingent valuation: stated economic value of public goods varies according to consumers’ expectations of funding source. J Econ Psychol 19: 205–214 Google Scholar
  98. Rabin M (1998). Psychology and economics. J Econ Liter 36: 11–46 Google Scholar
  99. Randall A (1994). A difficulty with the travel cost method. Land Econ 70: 88–96 Google Scholar
  100. Randall A, Ives BC and Eastman C (1974). Bidding games for valuation of aesthetic environmental improvements. J Environ Econ Manage 1: 132–149 Google Scholar
  101. Richer J (1995). Willingness to pay for desert protection. Contemp Econ Policy 13: 93–104 CrossRefGoogle Scholar
  102. Romer T and Rosenthal H (1978). Political resource allocation, controlled agendas and the status quo. Public Choice 33: 27–43 Google Scholar
  103. Rowe RD, Schulze WD and Breffle W (1996). A test for payment card biases. J Environ Econ Manage 31: 178–185 Google Scholar
  104. Ruud PA (1983). Sufficient conditions for the consistency of maximum likelihood estimation despite misspecification of the distribution in multinomial choice models. Econometrica 51: 225–228 Google Scholar
  105. Samuelson PA (1954). The pure theory of public expenditure. Rev Econ Stat 36: 387–389 Google Scholar
  106. Satterthwaite M (1975). Strategy-proofness and arrow conditions: existence and correspondence theorems for voting procedures and welfare functions. J Econ Theory 10: 187–217 Google Scholar
  107. Scott A (1965). The valuation of game resources: some theoretical aspects.Can Fish Rep 4: 27–47 Google Scholar
  108. Seip K and Strand J (1992). Willingness to pay for environmental goods in Norway: a CV study with real payment. Environ Resour Econ 2: 91–106 Google Scholar
  109. Smith VK and Desvousges WH (1986). Measuring water quality benefits. Kluwer, Boston Google Scholar
  110. Sudman S, Bradburn NM and Schwarz N (1996). Thinking about answers: the application of cognitive processes to survey methodology. Jossey-Bass Publishers, San Francisco Google Scholar
  111. Sugden R (1999). Alternatives to the neo-classical theory of choice. In: Bateman, IJ and Willis, KG (eds) Valuing environmental preferences: theory and practice of the contingent valuation method in the US, EU and developing countries, pp. Oxford University Press, New York Google Scholar
  112. Swait J and Louviere JJ (1993). The role of the scale parameter in the estimation and use of generalized extreme value models. J Market Res 30: 305–314 Google Scholar
  113. Tversky A, Slovic P and Kahneman D (1990). The causes of preference reversal. Am Econ Rev 80: 204–217 Google Scholar
  114. Varian H (1992). Microeconomic analysis. Norton, New York Google Scholar
  115. Vickery W (1961). Counterspeculation, auctions and competitive sealed tenders. J Finance 16: 8–37 Google Scholar
  116. Vossler CA, Kerkvliet J, Polasky S and Gainutdinova O (2003). Externally validating contingent valuation: an open-space survey and referendum in Corvallis, Oregon. J Econ Behav Organ 51: 261–277 Google Scholar

Copyright information

© Springer Science+Business Media, Inc. 2007

Authors and Affiliations

  1. 1.Department of Economics, 0508University of CaliforniaSan Diego, La JollaUSA

Personalised recommendations