Stated Preference 2010

Stated Means you ask somebody about something rather than watch them do something. You can lie.

Passive use I love wolves existence but I don’t do anything at all with them –I don’t contribute to wolf organizations –I don’t go to Yellowstone to see them –I just love them while sitting alone in my armchair Travel cost gives a value for me of zero for wolves.

Option One day I might want to go see wolves in Yellowstone. I am willing to pay for the option to see them. An option is the right and not the obligation. –A theatre ticket is the right to see the play, but the author will not come with a gun to force you to see it.

Money First talk to them about money and how it could be used for other projects.

Background Give the subjects some context for the project that will be proposed. Then tell respondent about wolves and their role in ecosystem. –Show them pictures of wolves, yellowstone, and excess herbivory

So tell about a project Describe a specific project –Allow them to run free in Yellowstone –Need money to pay for dead sheep

And a specific payment method A surcharge on sales tax for meat An income tax surcharge A surcharge on sales tax for environment texts

Reasons to Vote for and Against Remind the subject that there are good reasons to vote for or against the project. Trying not to convey the attitude that all good people are for a meat tax. (A good reason to have disinterested people, not the investigator, ask the questions.)

The Question Open ended: –How much would you be willing to pay to make yellowstone a wolf haven? Referendum: –Would vote for a surcharge on your income tax of $X to support the wolf indemnification program so that Yellowstone can be a wolf haven? Choose x to be different numbers for different people to trace a demand curve.

The debrief Ask about –Income –Education –Family status –Etc Use to show how characteristics affect choice. –Would wonder about survey if wolves were an inferior good and men loved them more than women

Lies You want more wolves in Yellowstone and are truly willing to pay $50. You know that the WTP measure computed from the survey will determine the number of wolves. What number do you give as an answer to how much will you pay? Do you say yes to the referendum at $60?

How to analyze discrete choice Yes or No votes to save the wolves Take bart, bus or drive etc.

Cumulative and Density: What percent above?

Random Utility model U = a E + b I –E # of wolves –I Income a and b are parameters Two cases, with and without improvement U 1 = aE 1 + b I U 2 = aE 2 + b (I-P) –P is payment

Pick the best Says yes to referendum if – U 2 > U 1 – a(E 2 -E 1 ) –bP > 0 If people are a little different –e i is the little bit of difference in wolf liking –U 2 = aE 2 + b(I-P) +e i –U 2 > U 1 means a(E 2 -E 1 ) –bP + e i > 0

Who says yes – a(E 2 -E 1 ) –bP + e i > 0 –All those who have e’s e i > -a (E 2 – E 1 ) + bP So for each P we will have some fraction that says Yes and some that says NO. We choose a and b to make the predicted fractions as close as possible to the actual fractions.

Wolf value Now we have the parameters a and b. U = a E + b I –So 1 wolf increase U by a –$1 increase U by b –U constant is 1 wolf up and $a/b down –Value of a wolf is a/b!

Conjoint Analysis Two or more variants on the project. –Garden with 30% native plants –Garden with 100% native plants –Garden with no native plants. Attributes –Intensity of color display –Water use –Cost

Alternatives have different attributes No native –Intense color, low cost, high water 20% –intense color, high cost, medium water All native –Dull, low cost, low water

Utility depends on attribs U i = a * color i + b * cost i + c * water i –Where i = all native, non-native, 20% native –Utility of the alternative depends upon the quantity of the attributes and their valuation, a, b,c. We ask people to choose an alternative and use RUM to find the a, b, c that get us predictions close to the fraction that actually chose the alternatives

Advantage Learn the value of the underlying attributes. –Does the saved water drive peoples use of native landscape? –Are people color freaks? –Is it all about the pocketbook?

Criticism of SP in general Background. –The Exxon Valdez spawned a huge litigation battle. Exxon realized that contingent valuation had the potential to make every spill a company threatening situation. Arm chair environmentalists would have to be paid. –Economics profession was heavily involved in either defending or attacking. –Michael Hanneman and Richard Carson were on the side of making the companies pay.

Hypothetical bias You don’t really have to pay with a CV study. –There are studies where both CV and revealed preference have been done and CV doesn’t generally overstate the revealed preference answer. –e.g. Do a cv study on the value of hunting licenses. Then send the licenses out with a check and say return one.

Scope If you would pay $20 to save one lake, would you pay $20,000 to save 1,000 lakes? $26 to clean up local water and $68 to clean up all water? Are these internally inconsistent? Probably not. Willing to pay less for each additional lake, WTP more for local than far away.

Experimental Pay people to taste SOA. It is bitter. Give people $10. If a majority says yes, every one of them gives up $5 and gets a piece of sports memorabilia. Compare to a CV experiment, hypothetical. External Validity —do these experiments tell us anything about the world at large or only students and sports memorabilia fans?

A Pitch for Marketing I have a new pizza. Should I be marketing it which costs $25 million or should I forget it? Marketing uses techniques like those above—surveys and experiments to learn about demand. Unlike our environment business, they learn what true demand is when they put the pizza on the market.