Valuing externalities from water supply: Status quo, choice complexity and individual random effects in panel kernel logit analysis of choice experiments

Abstract

Choice experiments are often implemented with choice sets including one alternative depicting the status quo. Utility from status quo is experienced by the respondent, while utility associated with experimentally designed hypothetical alternatives is only conjectured by respondents. The effects of explicitly accounting for such a difference in the econometric analysis of the data are often unreported, or limited to fitting a 'status quo' constant. The paper proposes a model that explicitly accounts for these effects and attempts their decomposition using data from two choice modelling exercises designed to value the provision of environmental goods. Preferences for change versus status quo are explored with standard specifications along with a less usually applied error component analysis via mixed logit. The results suggest that alternatives offering changes from status quo do not share the same preference structure as the status quo alternative, and that estimates of spread parameters in zero-mean error components can be decomposed conditional on respondents' socio-economic characteristics. It is argued that these findings have implications for practitioners and their stance towards the strategies for the econometric analysis of choice modelling data for the purpose of valuation.

Test–Retest Reliability of Choice Experiments in Environmental Valuation

“…Studies applying joint error components for the hypothetical alternatives in the econometric analysis, for example, have provided ample evidence that the utilities of these alternatives are often highly correlated (e.g. Scarpa et al 2007b). Choosing a different non-status quo alternative therefore indicates a different choice but can still express similar benefits derived from the environmental change investigated.…”

How much are households willing to contribute to the cost recovery of drinking water supply? Results from a household survey

“…In this study, a more advanced stated preference Choice Modeling (e.g. Blamey et al, 1999;Scarpa et al, 2007), is applied where households are asked to choose between different policy scenarios of improved water supply services at different water price levels. In the design of the Choice Modeling, a distinction is made between improved water supply delivery in terms of extra day per week and water quality where there is no boiling of water for anyone at all.…”

Behavioral implications of providing real incentives in stated choice experiments

“…By specifying a common error component across these two alternatives, correlation patterns in utility over these alternatives is induced. Thus, the error component captures any additional variance associated with the cognitive effort of evaluating experimentally designed hypothetical alternatives (Brownstone and Train 1999, Herriges and Phaneuf 2002, Scarpa et al 2005. This results in the following general utility structure:…”

“…Following Train (2003) and Scarpa et al (2005), the probabilities of the ECL mixed logit type model can be described as integrals of the standard conditional logit function evaluated at different µ's with a density function as the mixing distribution. Furthermore, this specification can be generalised to allow for repeated choices by the same respondent, i.e.…”

“…Following Scarpa et al (2005) an Alternative Specific Constant (ASC) is specified for the status quo alternative in order to capture the systematic component of a potential status quo effect. Furthermore, an error component additional to the usual Gumbel-distributed error term is incorporated in the model to capture any remaining status quo effects in the stochastic part of utility.…”