Testing the effect of changes in elicitation format, payment vehicle and bid range on the hypothetical bias for moral goods
Introduction
The valuation of non-market goods through the use of stated preference techniques is an established practice, allowing policymakers to infer the value placed on goods such as environmental services when no value can be inferred from market goods and related behaviour. Since the emergence and broad appliance of stated preference methods, many rich scientific discussions have taken place regarding the merits and drawbacks of the method (Kahneman and Knetsch, 1992; Carson and Mitchell, 1995; Carson et al., 1996; Johnston et al., 2017). The most prominent factor identified in this debate is the discussion regarding hypothetical bias, a term used to capture the idea that when faced with no real consequence of their choices, people will tend to overstate their willingness to pay for a certain good (List and Gallet, 2001; Murphy et al., 2005; Hensher, 2010). While for some types of goods it is possible to triangulate the results, for many other goods it is not. These other goods are typically described by a strong non-use component, also often involving morally challenging decisions. This can for example be conserving nature, or ensuring future generations’ living conditions – issues that are indeed discussed and taken into account in policy making. Consequently, if we want to inform policymakers on issues pertinent to policy design, stated preference methods must be applied, despite the existence of this possible bias.
In the literature, the origin of hypothetical bias has been ascribed to several factors. Examples of such factors are the elicitation format and the elicited welfare measure, e.g. willingness-to-pay (WTP) or willingness-to-accept (WTA) (List and Gallet, 2001), the warm glow of giving as termed by Andreoni (1990) which has been subsequently tested in relation to hypothetical bias in stated preference studies (Nunes and Schokkaert, 2003; Nunes et al., 2009; Johansson-Stenman and Svedsäter, 2012), social desirability bias whereby individuals’ valuation of a certain good is influenced by how socially attractive it is to show support (Crowne and Marlowe, 1960; Epley and Dunning, 2000; List et al., 2004; Lusk and Norwood, 2009), and lastly also the type of good being valued, e.g. public or private good (Alpizar et al., 2008; Johansson-Stenman and Svedsäter, 2012). In this study, we explore the role of elicitation format, payment vehicle and bid range, which are all factors that may influence the motivational reasons for hypothetical bias.
We use the term elicitation format to capture whether preferences are elicited through a hypothetical or a revealed preference mechanism. The typical approach used in investigating hypothetical bias has been to compare preference measures from stated and revealed preference (SP-RP) counterparts (List and Gallet, 2001). In this study, we are interested in investigating distributional preferences for climate policies, where no revealed preference measure exists. Our survey design scheme facilitates a partial SP-RP preference comparison, as we elicit preferences and welfare measures for climate policy in both two strictly hypothetical settings and in an incentivized stated preference setting, where individuals are making real donations to the same policies as presented to respondents in the hypothetical settings. This change in elicitation format is the closest approximation to a true stated and revealed preference comparison that is possible in the given context, as the most realistic payment vehicle for the climate policies investigated is a tax, which is a payment vehicle that is difficult to reproduce in a revealed preference context.1 However, in the survey design scheme examined in this paper, not only the elicitation format changes but also the type of payment vehicle and bid range of the cost attribute change, both of which could influence hypothetical bias. Therefore we need to look at the findings in the literature regarding the role of these two additional factors.
A branch of the valuation literature has investigated how a change in the type of payment vehicle in itself might influence inference from choice data, with some papers suggesting that a coercive instrument such as a tax results in higher estimates of willingness-to-pay compared to a voluntary instrument like a donation (Nunes and Schokkaert, 2003; Wiser, 2007). On the other hand, using an instrument like a donation mechanism has been shown to lead to warm glow of giving. While this is indeed a part of the people's utility function, it may not be solely linked to the good in question. As there is no “budget constraint” for this warm glow of giving, it may inflate the value for single studies, and consequently, since the NOAA recommendations (Arrow et al., 1993), it has been suggested that the donation payment vehicle should not be used in the estimation of welfare values. Related to this is also the possible diversion between preferences elicited when being asked to act as ‘homo economicus’ as opposed to ‘homo politicus’ (Nyborg, 2000). Nyborg argues that individuals may have a dual set of preferences, one relating to their personal well-being and one related to their subjective social welfare and that the latter may be the one that dominates when answering WTP question where their role as citizens are dominating. If this is the case, the underlying preferences will differ depending on the payment vehicle – as it emphasizes two different roles the individual may take. Another problematic component in the use of tax as a payment vehicle is that tax aversion may influence the choices made by respondents (Kallbekken and Sælen, 2011), including the possibility that a tax being coercive results in crowding-out of intrinsic motivation to contribute to public goods (Goeschl and Perino, 2012). We explicitly test for the effect of payment vehicle by comparing preferences elicited in subsamples where the only difference is the payment vehicle – a hypothetical tax and a hypothetical donation.
Another parameter that is typically varied in comparisons of SP-RP preference studies is the bid range – not least when the revealed comparison is conducted in a lab where individuals are faced with a real budget constraint, whereby participants for ethical reasons cannot be asked to leave the experiment worse off than when they entered. Consequently, any trade-off they are asked to make has to be made with the experimentally provided money (Kagel and Roth, 1995). Previous studies examining the effect of varying the level of the cost attribute in CE studies have typically found higher levels of WTP when the levels of the cost attribute increased (Carlsson and Martinsson, 2008; Ladenburg and Olsen, 2008; Mørkbak et al., 2010), but the literature also contains examples of no difference in WTP (Hanley et al., 2005; Kragt, 2013). Kragt (2013) proposes that the result of no difference in WTP when introducing an increased cost vector could be due to the presence of hypothetical bias, while also mentioning that a high level of the cost attribute might affect the unobserved error variance, leading to higher levels of variance. This effect on error variance has also been proposed by Mørkbak et al. (2010), but Kragt (2013) argues that the effect could also be reversed, in that high costs could lead to more certainty in choice, thus reducing the error variance. As in Kragt (2013), we vary the level of the cost attribute between samples, but the change in bid range in our setting is 10-fold, whereas it is only a 50% increase for the highest bid in her study. Thereby we push the bid range comparison into the extreme.
We keep the survey context constant when investigating the effects of varying elicitation format, payment vehicle and bid range. Respondents are asked to value climate policies, with distributional outcomes manifesting in the far future as well as in present time, across three specific regions of the world. The future distributional outcomes are described in terms of changes to the average income level as a result of lower impacts of climate change resulting from additional investments in climate policy. The present-time outcome is the provision of the co-benefit of cleaner air, brought about by increased climate mitigation activity in the fuel combustion sector. Compared to earlier SP-RP studies, we are able to explicitly distinguish the effect of payment vehicle, and vary the bid range and elicitation format. Furthermore, we are making the comparison for a good which has inherent moral components, which are relevant for many policy-informing SP studies, but also challenging.
Section snippets
Choice context
The data for this study consist of four samples using the same choice context, which is asking respondents to value distributional outcomes of climate policy.2 Climate policy is described as having a future and a present time impact on
Results
We start by showing the model estimates. Then we conduct the Swait & Louviere test of heterogeneity in preference structure and scale for all three specified tests and as a final test, we estimate and compare WTP of the different samples included in each of the three tests.
Table 2 lists the results of the four models. In all models, the estimated attribute parameters have the expected signs. The cost coefficients are all estimated as negative, indicating that respondents on average experienced
Concluding discussion
The presence of hypothetical bias has been an issue since the use of stated preference elicitation methods started. While in some fields, e.g. transportation, validation by the use of revealed preference methods is possible, this is a less viable option for many of the environmental goods where non-use values play a large role. Further, many environmental goods involve asking respondents to act as what Nyborg (2000) calls “Homo politicus” rather than “Homo economicus”, thereby potentially
Acknowledgements
The authors would like to thank Julian Sagebiel for providing his user-written Stata command, poetest. Furthermore, we thank three anonymous reviewers for constructive comments. Jette Bredahl Jacobsen acknowledge the funding from the Danish National Research Foundation for the Centre for Macro-ecology, Evolution and Climate (grant number DNRF96).
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