Modelling outcome-related risk in choice experiments
The economic valuation of benefits resulting from environmental policies and intervention typically assumes that environmental outcomes are certain, whilst in reality they are rarely known with certainty. Outcome-related risk has been observed to reduce the benefit estimates derived from the use of stated preference methods. In this study we introduce information on outcome-related risk as an additional attribute in a choice model of preferences for a land-based climate change mitigation project. The article provides a comprehensive comparison of different model specifications arising from different behavioral assumptions about the way respondents make use and process information on outcome-related risk within the choice task. We analyzed the consequences of using different model specifications on the predictive power of the models, and on willingness to pay (WTP) estimates that can be used for policy purposes. We find significant differences between several specifications in terms of both model fit and WTP estimates. On the other hand, model specifications based on non-compatible theoretical foundations can yield similar WTP values. The choice of a particular model specification when modeling outcome-related risk based on stated preference data is therefore not a trivial task. The behavioral assumptions made, and reasons that motivate them should be made explicit, and consequences of using different specifications should not be ignored.
Other Titles/Title of Conference
18th Annual Conference of the European Association of Environmental and Resource Economists, Rome, Italy