Skip to main content
SpringerLink
Log in

The Effects of Changing Cost Vectors on Choices and Scale Heterogeneity

  • Published:
Environmental and Resource Economics Aims and scope Submit manuscript

Abstract

Choice Experiments (CE) are widely used to estimate the values of changes in non-market goods and services. A cost attribute is typically included in a CE questionnaire to enable the estimation of monetary values for changes in the non-market attributes presented. Notwithstanding the central importance of the cost attribute, relatively little research has been undertaken on the impacts of varying cost attribute levels on value estimates, or on individual heterogeneity. In this paper, I present results from mixed logit and generalised mixed logit models that account for unobserved idiosyncratic preference and scale heterogeneity. Respondents are found to anchor their choices on the relative cost levels presented in the survey with results suggesting that people are more sensitive to relative rather than absolute cost vectors. However, the higher cost levels do not lead to significantly higher value estimates, partly because of observed preference heterogeneity towards the environmental attributes. An important observation is that scale heterogeneity is important: accounting for scale— as well as preference—heterogeneity in the generalised mixed logit model leads to significantly improved model fit. The results indicate significant unobserved error variance across respondents, unrelated to whether a high or low cost vector is used.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • ABS (2006) 2006 Census. Australian Bureau of Statistics, Canberra

  • ABS (2007) Statistics—Tasmania, 2007. Australian Bureau of Statistics. Australian Bureau of Statistics, Canberra

  • Ariely D, Loewenstein G, Prelec D (2003) Coherent arbitrariness: stable demand curves without stable preferences. Q J Econ 118(1): 73–105

    Article  Google Scholar 

  • Ariely D, Loewenstein G, Prelec D (2006) Tom Sawyer and the construction of value. J Econ Behav Organ 60(1): 1–10

    Article  Google Scholar 

  • Banzhaf SH (2010) Consumer surplus with apology: a historical perspective on nonmarket valuation and recreation demand. Annu Rev Resour Econ 2(1): 183–207

    Article  Google Scholar 

  • Bateman I, Langford I, Rabash J (1999) Willingness to pay question format effects in contingent valuation. In: Bateman IJ, Willis KG (eds) Valuing environmental preferences: theory and practice of the contingent valuation method in the US, EU and Developing countries. Oxford University Press, Oxford

    Google Scholar 

  • Bateman IJ, Burgess D, Hutchinson WG, Matthews DI (2008a) Learning design contingent valuation (LDCV): NOAA guidelines, preference learning and coherent arbitrariness. J Environ Econ Manag 55: 127–141

    Article  Google Scholar 

  • Bateman IJ, Carson RT, Day B, Dupont D, Louviere JJ, Morimoto S, Scarpa R, Wang P (2008b) Choice set awareness and ordering effects in discrete choice experiments. CSERGE Working Paper EDM 08-01. IIED, London

  • Bateman IJ, Day BH, Dupont D, Georgiou S, Louviere JJ, Morimoto S, Wang P (2004) Preference formation in choice experiments (CE): task awareness and learning in cognitive process. In: Paper presented at the 2004 EAERE conference, Budapest, 25–28 June

  • Braga J, Starmer C (2005) Preference anomalies, preference elicitation and the discovered preference hypothesis. Environ Resour Econ 32(1): 55–89

    Article  Google Scholar 

  • Break O’Day Council (2007) Georges catchment and estuary project overview. Break O’Day Council, St. Helens

  • Campbell D, Hutchinson WG, Scarpa R (2008) Incorporating discontinuous preferences into the analysis of discrete choice experiments. Environ Resour Econ 41(3): 401–417

    Article  Google Scholar 

  • Carlsson F, 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 Manag 41(2): 179– 192

    Article  Google Scholar 

  • Carlsson F, Martinsson P (2008) How much is too Much? An investigation of the effect of the number of choice sets, context dependence and the choice of bid vectors in choice experiments. Environ Resour Econ 40(2): 165–176

    Article  Google Scholar 

  • Carson RT, Hanemann MW (2005) Contingent valuation. In: Mäler K-G, Vincent JR (eds) Handbook of environmental economics. Elsevier, Amsterdam

    Google Scholar 

  • Daly A, Hess S, Train K (2011) Assuring finite moments for willingness to pay in random coefficient models. Transportation Published online, 01 April 2011

  • Davies PE, Long J, Brown M, Dunn H, Heffner D, Knight R (2005) The Tasmanian conservation of freshwater ecosystem values (CFEV) framework: developing a conservation and management system for rivers. In: The freshwater protected areas conference 2004. IRN and WWF-Australia, Sydney, pp 45–50

  • DPIW (2007) Annual waterways monitoring reports 2006: George catchment. Department of Primary Industries and Water

  • DPIWE (2005) Environmental management goals for Tasmanian surface waters. Dorset & Break O’Day municipal areas. Department of Primary Industries, Water and Environment, Hobart

  • Econometric Software (2010) Nlogit5 (beta-version). Econometric Software Inc, Castle Hill

  • Fiebig DG, Keane MP, Louviere J, Wasi N (2009) The generalized multinomial logit model: accounting for scale and coefficient heterogeneity. Mark Sci 29(3): 393–421

    Article  Google Scholar 

  • Flachaire E, Hollard G (2007) Starting point bias and respondent uncertainty in dichotomous choice contingent valuation surveys. Resour Energy Econ 29(3): 183–194

    Article  Google Scholar 

  • Frykblom P, Shogren JF (2000) An experimental testing of anchoring effects in discrete choice questions. Environ Resour Econ 16(3): 329–341

    Article  Google Scholar 

  • Garrod G, Willis KG (1999) Economic valuation of the environment: methods and case studies. Edward Elgar, Cheltenham

    Google Scholar 

  • Green D, Jacowitz KE, Kahneman D, McFadden D (1998) Referendum contingent valuation, anchoring, and willingness to pay for public goods. Resour Energy Econ 20(2): 85–116

    Article  Google Scholar 

  • Greene WH, Hensher DA (2007) Heteroscedastic control for random coefficients and error components in mixed logit. Transp Res Part E Logist Trans Rev 43(5): 610–623

    Article  Google Scholar 

  • Greene WH, Hensher DA (2010) Does scale heterogeneity across individuals matter? An empirical assessment of alternative logit models. Transportation 37(3): 413–428

    Article  Google Scholar 

  • Greene WH, Hensher DA, Rose J (2006) Accounting for heterogeneity in the variance of unobserved effects in mixed logit models. Trans Res Part B Methodol 40(1): 75–92

    Article  Google Scholar 

  • Hanley N, Adamowicz W, Wright RE (2005) Price vector effects in choice experiments: an empirical test. Resour Energy Econ 27(3): 227–234

    Article  Google Scholar 

  • Hanley N, Wright RE, Alvarez-Farizo B (2006) Estimating the economic value of improvements in river ecology using choice experiments: an application to the water framework directive. J Environ Manag 78(2): 183–193

    Article  Google Scholar 

  • Hensher DA (2004) Identifying the influence of stated choice dimensionality on willingness to pay for travel time savings. J Transp Econ Pol 38(3): 425–446

    Google Scholar 

  • Hensher DA (2006) How do respondents process stated choice experiments? Attribute consideration under varying information load. J Appl Econ 21(6): 861–878

    Article  Google Scholar 

  • Hensher DA (2011) Accounting for scale heterogeneity within and between pooled data sources. Institute of Transport and Logistic Studies, Sydney

    Google Scholar 

  • Hensher DA, Greene WH (2003) The mixed logit model: the state of practice. Transportation 30: 133–176

    Article  Google Scholar 

  • Hensher DA, Rose JM (2007) Development of commuter and non-commuter mode choice models for the assessment of new public transport infrastructure projects: a case study. Transp Res Part A Policy Pract 41(5): 428–443

    Article  Google Scholar 

  • Hensher DA, Rose JM, Greene WH (2005) Applied choice analysis: a primer. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Hensher DA, Rose JM, Li Z (2011) Does the choice model method and/or the data matter? ITLS Working Paper, ITLS-WP-11-14. Institute of Transport and Logistic Studies, Sydney

  • Herriges JA, Shogren JF (1996) Starting point bias in dichotomous choice valuation with follow-up questioning. J Environ Econ Manag 30(1): 112–131

    Article  Google Scholar 

  • Kragt ME, Bennett J (2011) Using choice experiments to value catchment and estuary health in tasmania with individual preference heterogeneity. Aust J Agric Res Econ 55(2): 159–179

    Article  Google Scholar 

  • Ladenburg J, Olsen SB (2008) Gender-specific starting point bias in choice experiments: evidence from an empirical study. J Environ Econ Manag 56: 275–285

    Article  Google Scholar 

  • Lichtenstein S, Slovic P (2006) The construction of preference. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Lliff G (2002) George river catchment: plan for rivercare works for the upper catchment, North George and South George Rivers. George River Catchment Coordinator, St Helens

    Google Scholar 

  • Louviere J (2006) What you don’t know might hurt you: some unresolved issues in the design and analysis of discrete choice experiments. Environ Resour Econ 34(1): 173–188

    Article  Google Scholar 

  • Louviere J, Street D, Carson R, Ainslie A, Deshazo JR, Cameron T, Hensher D, Kohn R, Marley T (2002) Dissecting the random component of utility. Mark Lett 13(3): 177–193

    Article  Google Scholar 

  • Louviere JJ, Eagle TC (2006) Confound it! That pesky little scale constant messes up our convenient assumptions! CenSoC Working Paper No. 06-002. Centre for the Study of Choice, University of Technology, Sydney

  • Louviere JJ, Hensher DA, Swait JD (2000) Stated choice methods: analysis and applications. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Luisetti T, Bateman IJ, Turner RK (2011) Testing the fundamental assumption of choice experiments: are values absolute or relative?. Land Econ 87(2): 284–296

    Google Scholar 

  • Mitchell RC, Carson RT (1989) Using surveys to value public goods: the contingent valuation method. Resources for the Future, Washington

    Google Scholar 

  • Mørkbak M, Christensen T, Gyrd-Hansen D (2010) Choke price bias in choice experiments. Environ Resour Econ 45(4): 537–551

    Article  Google Scholar 

  • NRM North (2008) State of the region: water quality and stream condition in Northern Tasmania 2006. North Water Monitoring Team, Launceston

  • Payne JW, Bettman JR, Schkade DA (1999) Measuring constructed preferences: towards a building code. J Risk Uncertain 19(1): 243–270

    Article  Google Scholar 

  • Poe GL, Giraud KL, Loomis JB (2005) Computational methods for measuring the difference of empirical distributions. Am J Agric Econ 87(2): 353–365

    Article  Google Scholar 

  • Revelt D, Train K (1998) Mixed logit with repeated choices: households’ choices of appliance efficiency level. Rev Econ Stat 80(4): 647–657

    Article  Google Scholar 

  • Ryan M, Wordsworth S (2000) Sensitivity of willingness to pay estimates to the level of attributes in discrete choice experiments. Scot J Polit Econ 47(5): 504–524

    Article  Google Scholar 

  • Sándor Z, Wedel M (2001) Designing conjoint choice experiments using managers’ prior beliefs. J Mark Res 38(4): 430–444

    Article  Google Scholar 

  • Scarpa R, Rose JM (2008) Designs efficiency for nonmarket valuation with choice modelling: how to measure it, what to report and why. Aust J Agric Resour Econ 52(3): 253–282

    Article  Google Scholar 

  • Silverman J, Klock M (1989) The behavior of respondents in contingent valuation: evidence on starting bids. J Behav Econ 18(1): 51–60

    Article  Google Scholar 

  • Slovic P (1995) The construction of preference. Am. Psychol 50(5): 364–371

    Article  Google Scholar 

  • Swait J, Louviere J (1993) The role of the scale parameter in the estimation and comparison of multinational logit models. J Mark Res 30(3): 305–314

    Article  Google Scholar 

  • Train K (2000) Halton sequences for mixed logit. Paper E00-278. University of California. Institute of Business and Economics, Berkeley

  • Tversky A, Simonson I (1993) Context-dependent preferences. Manag Sci 39(10): 1179

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Centre of Environmental Economics and Policy, School of Agricultural and Resource Economics, University of Western Australia, Perth, M089-35 Stirling Highway, Crawley, WA, 6009, Australia

    Marit Ellen Kragt

Authors
  1. Marit Ellen Kragt
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Marit Ellen Kragt.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Kragt, M.E. The Effects of Changing Cost Vectors on Choices and Scale Heterogeneity. Environ Resource Econ 54, 201–221 (2013). https://doi.org/10.1007/s10640-012-9587-x

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10640-012-9587-x

Keywords

Search

Navigation