Environmental and Resource Economics

, Volume 59, Issue 3, pp 433–454 | Cite as

Hypothetical Bias Reconsidered: Payment and Provision Uncertainties in a Threshold Provision Mechanism

  • Yohei MitaniEmail author
  • Nicholas E. Flores


We extend research on the consequentiality of stated preference choices to a threshold provision mechanism for public goods. We develop a simple theoretical model of option price to analyze how option price varies with payment and provision uncertainty. We explore whether threshold provision contributions are similarly influenced by payment and provision uncertainty using an induced value contribution experiment. Results suggest that: (1) the probability of payment has a negative effect on contributions; (2) the probability of provision has a positive effect on contributions. We offer subjective beliefs regarding payment and provision as a plausible systematic explanation for hypothetical bias.


Hypothetical bias Induced-values Payment uncertainty Provision uncertainty Stated preferences Threshold public goods game 

JEL Classification

C91 H41 Q51 



This paper was originally entitled “A New Explanation for Hypothetical Bias: Subjective Beliefs of Hypothetical Aspects in Payment and Provision.” The authors thank Trudy Cameron, Katherine Carson, Richard Carson, Eric Duquette, George Hutchinson, Toshiro Kikuchi, Koichi Kuriyama, Eirik Romstad, Masayuki Sato, Riccardo Scarpa, Jason Shogren, Koichi Suga, Kenji Takeuchi, and participants at the EAERE 18th annual conference, NAREA workshop on experimental economics, and a special session on hypothetical bias at 4th WCERE for insightful comments and suggestions on an earlier draft of the paper. The experiment was supported by the Grant-in-Aid for Scientific Research (B) (21310030). Yohei Mitani was partially supported by the Japan Society for the Promotion of Science. The views expressed in the paper are those of the authors.


  1. Bagnoli M, Lipman BL (1989) Provision of public goods: fully Implementing the core through private contributions. Rev Econ Stud 56:583–601CrossRefGoogle Scholar
  2. Bohara AK, McKee M, Berrens RP, Jenkins-Smith H, Silva CL, Brookshire DS (1998) Effects of total cost and group-size information on willingness to pay responses: open ended vs. dichotomous choice. J Environ Econ Manag 35:142–163CrossRefGoogle Scholar
  3. Burghart DR, Cameron TA, Gerdes GR (2007) Valuing publicly sponsored research projects: risks scenario adjustments, and inattention. J Risk Uncertain 35:77–105CrossRefGoogle Scholar
  4. Burton AC, Carson KS, Chilton SM, Hutchinson WG (2007) Resolving questions about bias in real and hypothetical referenda. Environ Resour Econ 38:513–525CrossRefGoogle Scholar
  5. Cameron TA, Poe GL, Ethier RG, Schulze WD (2002) Alternative non-market value-elicitation methods: are the underlying preferences the same? J Environ Econ Manag 44:391–425CrossRefGoogle Scholar
  6. Carson RT, Groves T (2007) Incentive and informational properties of preference questions. Environ Resour Econ 37:181–210CrossRefGoogle Scholar
  7. Carson R, Groves T, List J, Machina M (2004) Probabilistic influence and supplemental benefits: a field test of the two key assumptions underlying stated preferences. Working paperGoogle Scholar
  8. Champ PA, Bishop RC, Brown TC, McCollum DW (1997) Using donation mechanisms to value nonuse benefits from public goods. J Environ Econ Manag 33:151–162CrossRefGoogle Scholar
  9. Champ PA, Flores NE, Brown TC, Chivers J (2002) Contingent valuation and incentives. Land Econ 78:591–604CrossRefGoogle Scholar
  10. Croson R, Marks M (1998) Identifiability of individual contributions in a threshold public goods experiment. J Math Psychol 42:167–190CrossRefGoogle Scholar
  11. Croson R, Marks MB (2000) Step returns in threshold public goods: a meta- and experimental analysis. Exp Econ 2:239–259Google Scholar
  12. Cummings RG, Taylor LO (1998) Does realism matter in contingent valuation surveys? Land Econ 74:203–215CrossRefGoogle Scholar
  13. Fischbacher U (2007) z-Tree: Zurich toolbox for ready-made economic experiments. Exp Econ 10:171–178CrossRefGoogle Scholar
  14. Flores NE, Strong A (2007) Cost credibility and the stated preference analysis of public goods. Resour Energy Econ 29:195–205CrossRefGoogle Scholar
  15. Green D, Jacowitz KE, Kahneman D, McFadden D (1998) Referendum contingent valuation, anchoring, and willingness to pay for public goods. Resour Energy Econ 20:85–116CrossRefGoogle Scholar
  16. Hanemann WM (1994) Valuing the environment through contingent valuation. J Econ Perspect 8:19–43CrossRefGoogle Scholar
  17. Harrison GW (2006) Experimental evidence on alternative environmental valuation methods. Environ Resour Econ 34:125–162CrossRefGoogle Scholar
  18. Herriges J, Kling C, Liu C-C, Tobias J (2010) What are the consequences of consequentiality? J Environ Econ Manag 59:67–81CrossRefGoogle Scholar
  19. Holt CA, Laury SK (2002) Risk aversion and incentive effects. Am Econ Rev 92:1644–1655CrossRefGoogle Scholar
  20. Jacquemet N, Joule R-V, Luchini S, Shogren JF (2010) Preference elicitation under oath. Working paperGoogle Scholar
  21. Landry CE, List JA (2007) Using ex ante approaches to obtain credible signals for value in contingent markets: evidence from the field. Am J Agric Econ 89:420–429CrossRefGoogle Scholar
  22. Laury SK (2006) Pay one or pay all: random selection of one choice for payment. Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, Experimental Economics Center working paper series, 2006-24Google Scholar
  23. Mitani Y, Flores NE (2009) Demand revelation, hypothetical bias, and threshold public goods provision. Environ Resour Econ 44:231–243CrossRefGoogle Scholar
  24. Mitani Y, Flores NE (2010) Public goods referenda without perfectly correlated prices and quantities. Working paperGoogle Scholar
  25. Murphy JJ, Allen PG, Stevens TH, Weatherhead D (2005) A meta-analysis of hypothetical bias in stated preference valuation. Environ Resour Econ 30:313–325CrossRefGoogle Scholar
  26. Poe GL, Clark JE, Rondeau D, Schulze WD (2002) Provision point mechanisms and field validity tests of contingent valuation. Environ Resour Econ 23:105–131CrossRefGoogle Scholar
  27. Poe GL, Vossler CA (2011) Consequentiality and contingent values: an emerging paradigm. In: Bennett J (ed) The international handbook on non-market environmental valuation. Edward Elgar Publishers, Cheltenham, pp 122–141Google Scholar
  28. Rondeau D, Poe GL, Schulze WD (2005) VCM or PPM? A comparison of the performance of two voluntary public goods mechanisms. J Public Econ 89:1581–1592CrossRefGoogle Scholar
  29. Shafran A (2007) Measuring benefits with supply-side uncertainty. Working paperGoogle Scholar
  30. Shogren JF (2005) Experimental methods and valuation. In: Mäler KG, Vincent JR (eds) Handbook of environmental economics, vol 2, chapter 19. Elsevier, pp 969–1027Google Scholar
  31. Vossler CA, Evans MF (2009) Bridging the gap between the field and the lab: environmental goods, policy maker input, and consequentiality. J Environ Econ Manag 58:338–345CrossRefGoogle Scholar
  32. Vossler CA, Mckee M (2006) Induced-value tests of contingent valuation elicitation mechanisms. Environ Resour Econ 35:137–168CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.UMB School of Economics and BusinessNorwegian University of Life SciencesÅsNorway
  2. 2.Division of Natural Resource Economics, Graduate School of AgricultureKyoto UniversityKyotoJapan
  3. 3.Department of Economics and Institute of Behavioral ScienceUniversity of ColoradoBoulderUSA

Personalised recommendations