Do Respondents Adjust Their Expected Utility in the Presence of an Outcome Certainty Attribute in a Choice Experiment?
- 521 Downloads
In a stated preference valuation survey, the expected benefits of environmental policies are generally presented to respondents without reference to the fact that the predicted outcomes are rarely known with certainty. This omission may reduce the credibility of the valuation scenario and contribute to hypothetical bias. In the study outlined in this paper, a choice experiment was conducted to elicit values for environmental improvements in the Great Barrier Reef (Australia), with outcome certainty included as a separate attribute. Different specifications of the utility functions, which imply different behavioural assumptions about the way choices have been made, generate variations in value estimates. Results showed that respondents incorporate outcome certainty into their decisions, but that an expected utility formulation, represented by the interaction between environmental protection and likelihood of occurrence, underestimated environmental values. Some environmental protection values appear to be independent of outcome certainty, which may be consistent with existence values and other non-use categories. A partial expected utility model is cautiously recommended.
KeywordsChoice experiment Expected utility Uncertainty Coral reefs Existence values
The research reported in this paper has been funded through the Environmental Economics Research Hub funded through the Commonwealth Environment Research Facility in Australia. The contributions of Jeff Bennett and staff from the Great Barrier Reef Marine Park Authority to the design of the project and Daniel Gregg for the efficient experimental designs are gratefully acknowledged.
- Ciriacy-Wantrup SV (1952) Resource conservation: economics and policies. University of California Press, BerkeleyGoogle Scholar
- Furnas M (2003) Catchments and corals: terrestrial runoff to the Great Barrier Reef. Australian Institute of Marine Science and CRC Reef Research Centre, TownsvilleGoogle Scholar
- Garnaut R (2008) The Garnaut climate change review. Cambridge University Press, MelbourneGoogle Scholar
- Glenk K, Colombo S (2011) How sure can you be? A framework for considering delivery uncertainty in benefit assessments based on stated preference methods. J Agr Econ 62:25–46Google Scholar
- Great Barrier Reef Marine Park Authority (GBRMPA) (2009) Great Barrier Reef outlook report 2009. Great Barrier Reef Marine Park Authority, TownsvilleGoogle Scholar
- Hanemann WM (1991) Willingness to pay and willingness to accept: How much can they differ? Am Econ Rev 81(3):635–647Google Scholar
- Hausman DM, McPherson MS (1993) Taking ethics seriously: economics and contemporary moral philosophy. J Econ Lit 31:671–731Google Scholar
- Knight FH (1921) Risk, uncertainty and profit. Houghton Mifflin Company, BostonGoogle Scholar
- Lough J (2007) Climate and climate change on the Great Barrier Reef. In: Johnson J, Marshall P (eds) Climate change and the Great Barrier Reef: a vulnerability assessment. Great Barrier Reef Marine Park Authority and Australian Greenhouse Office, TownsvilleGoogle Scholar
- Randall A (1991) The value of biodiversity. Ambio 20:64–68Google Scholar
- Randall A, Farmer M (1995) Benefits, costs and a safe minimum standard of conservation. In: Bromley D (ed) Handbook of environmental economics. Blackwell, Oxford, pp 26–44Google Scholar
- Savage LJ (1954) The foundations of statistics. Wiley, New YorkGoogle Scholar
- Shaw WD, Baker J (2010) Models of location choice and willingness to pay to avoid hurricane risks for Hurricane Katrina evacuees. Int J Mass Emerg Disasters 28(1):87–114Google Scholar
- Shogren JF, Shin SY, Hayes DJ, Kliebenstein JB (1994) Resolving differences in willingness to pay and willingness to accept. Am Econ Rev 84(1):255–270Google Scholar
- Von Neumann J, Morgenstern O (1944) Theory of games and economic behaviour. Princeton University Press, PrincetonGoogle Scholar