Behavioral foundations of environmental economics and valuation

Abstract

IntroductionFor at least 60 years, economists have worked on empirical approaches to measuring the value of non-market goods and services. In its beginnings, this research employed models of revealed preferences, such as the travel cost approach for recreation 1 or the hedonic property value model for air pollution. 2 Economists pursued valuation based on revealed preferences because they were initially interested in what now, from our vantage, appears to be a narrow range of nonmarket services-those services for which revealed preference approaches could be applied.Further, given the profession's early suspicion of attitudinal surveys 3 , efforts to use any sort of stated preference approach would have met with even more intense opposition than they faced decades later.As economists became interested in the valuation of a wider range of non-market services the shortcomings of revealed preferences became more apparent. Revealed preference techniques could be used as long as the behavior of interest led to the correct welfare measure and was observable, but in numerous circumstances observed behavior was not available. One could not have employed a revealed preference study of the value of reducing pollution in LakeErie in the 1970's because the lake was so polluted that there was little use and no alternative, comparable, cleaner lake to observe. In this case, there is no revealed preference data on which to base valuation, and hence no ability to estimate the value of pollution reduction. In other

Contemporary Guidance for Stated Preference Studies

“…The NOAA panel (Arrow et al 1993) recommended WTP estimation. However, with advances since then-both in our understanding of why WTP and WTA might diverge (Brown and Gregory 1999;Horowitz, McConnell, and Murphy 2013;Ericson and Fuster 2014;Kim et al 2015) and in the design of SP methods-this recommendation need not always hold. In cases where payment reductions are institutionally feasible and incentive-compatible questions can be designed, 36 WTA estimation may be practical and appropriate.…”

Putting Your Money Where Your Mouth Is: The Value of Low Purchase Intention Consumers to Product Pricing

“…Despite the popularity of intention data, there is considerable evidence that inconsistencies often exist between what people say they will do and what they actually do (Ajzen, Brown, and Carvajal, 2004;Horowitz, McConnell, and Murphy, 2008;Murphy and Stevens, 2004). This is generally attributed to hypothetical bias, which is defined as the difference between stated and observed actions (Horowitz et al, 2008). However, there is very little research that examines if this hypothetical bias influences people differently (Murphy and Stevens, 2004).…”

Cost-Benefit Analysis and the Environment

“…The last decade has witnessed a huge increase in popularity of behavioural economics (BE) (see Camerer et al, 2011, for a review) and, in turn, of its influences in environmental economics (e.g. Horowitz et al, 2008;Shogren and Taylor, 2008;Brown and Hagen, 2010). Experimental research in this area has repeatedly identified empirical phenomena that are not adequately explained by traditional neoclassical economic analysis.…”