A Possible Explanation to Yea-saying in Contingent Valuation Surveys*

Transcription

1 A Possible Explanation to Yea-saying in Contingent Valuation Surveys* Todd L. Cherry a Appalachian State University Peter Frykblom b Swedish University of Agricultural Sciences 21 October 2000 Abstract Using a new approach, we are able to detect a contributing factor to the so-called yea-saying bias in contingent valuation surveys. Further, results provide insights regarding the validity of hypothetical responses. a corresponding author; Department of Economics, Appalachian State University, Boone NC ; phone: ; fax: ; cherrytl@appstate.edu b Department of Economics, Swedish University of Agricultural Sciences, Uppsala, Sweden. *Frykblom acknowledges STINT and SJFR for financial support. 1

2 1. Introduction The dichotomous choice (DC) question is currently the most recommended and used elicitation format in contingent valuation (CV) surveys. By asking respondents to accept or reject a certain bid for a proposed policy, the DC format provides a relatively familiar and simple framework that can be incentive compatible. In a number of recent articles, however, the DC format has been questioned as the appropriate elicitation method for CV. Carrying out such surveys, Holmes and Kramer (1995) and Boyle et al. (1998) found yea-saying, i.e., the tendency by some respondents to say Yes whether their willingness to pay is higher than the proposed DC bid or not. This paper extends the analysis of yea-saying and its implications for CV. Hypothesizing that yea-saying arises from reckless responses of individuals that perceive the question as hypothetical, we evaluate yea-saying in the DC format within hypothetical and real settings. Results indicate that yea-saying arises when the setting is hypothetical but disappears once payments are real. Hence, the presence of yea-saying in CV surveys may imply some respondents fail to perceive the survey as real. 2. Design of the Experiment If the DC format suffers from yea-saying, it can be detected by a comparison of responses to the DC format and an incentive compatible format that is unaffected by this bias. We undertake this analysis by comparing economic commitments elicited through a DC question and a Vickrey Auction (VA). Both elicitation formats have been showed to be theoretically incentive compatible when actual economic commitments are used, that is, truth-telling is a dominant strategy (see Hoehn and Randall, 1987 for DC and Vickrey, 1961 for VA). 2

3 To test our hypothesis that yea-saying is a phenomenon that arises in hypothetical settings, we compare the results generated from the two institutions using actual and hypothetical economic commitments. The commodity facing respondents was an edition of the Swedish National Atlas, volume Environment, which has an over-the-counter price of SEK The experiment was carried out at the Swedish University of Agricultural Sciences and at Karlstad University using a total of 210 undergraduate students. The experiments at each school were carried out the same day to decrease the possibility of rumors. At the beginning of a regular university lecture, subjects were invited to take part in an experimental session on economic decision making at the conclusion of the lecture. They were assured that participation was voluntary and that the session was not part of their class evaluation. But if they chose to remain in the classroom and complete the session, they would be paid SEK 20. In the DC sessions, four different bids were used and they were randomly distributed. The bids were SEK 60, 90, 150 and With the comparison of different elicitation formats, the questionnaires were designed to be as similar as possible. The VA format, however, was proceeded by a reading of VA instructions and the dominant strategy, including a numerical example. To avoid potential noise, the readings referred to an abstract good and the bids were deliberately much higher than any reasonable price for the book. The possibility of borrowing money was included in all sessions for those that wanted to buy the book but did not bring enough cash to the experiment. A loan request was incorporated in the questionnaire to conceal any borrowing from other subjects. The loan was to be paid within 1 At the time our experiment was carried out, SEK 8 was approximately equal to US $1. 2 Prior to the design of the DC session, a test Vickrey Auction with actual economic commitments was run to attain some information about an appropriate bid vector. The upper bids were chosen so as not to provide a fat tail ; that is, a situation where many respondents accept the highest bid. 3

4 seven days and the book was not distributed until the loan was paid. All loans were paid in a timely manner. 3. Results and Discussion The null hypothesis is that the two different elicitation formats generate the same mean willingness to pay (WTP). Mean WTP was estimated in SAS Lifereg (1990) assuming a normal distribution. The sample sizes, estimated means and standard deviations are shown in Table 1. Table 1 When real economic commitments are used, we fail to find any significant difference between the DC and VA formats (p=0.5236). In contrast, we reject the hypothesis of equality when the payment is hypothetical (p=0.005). While no evidence of yea-saying arises when economic commitments are real, the results suggest that the DC format may suffer from yea-saying when payments (or the whole survey) are perceived as hypothetical. There is no consensus in the literature whether respondents perceive a CV survey as hypothetical or not, see the NOAA panel (1993) and Hanemann (1994) for opposite views on this question. While several articles have shown that there is difference between hypothetical and actual willingness to pay (WTP), it is more difficult to show that responses to a CV survey are biased. In light of earlier work, however, the results presented in this paper may indirectly reveal something about the validity of stated responses to a CV questionnaire. Previous articles found yea-saying behavior in the DC format when using data from conducted CV surveys. We find evidence of yea-saying in hypothetical settings while not observing such behavior in real settings. Our results, therefore, may imply that some respondents perceive the questionnaire as purely hypothetical, a circumstance still debated. Whether this is true only for 4

5 those surveys where such behavior has been found or if it applies to all CV surveys is something that deserves further interest. References Boyle, K.J., H.F. MacDonald, H. Cheng and D.W. McCollum, 1998, Bid Design and Yea Saying in Single-bounded, Dichotomous-choice Questions, American Journal of Agricultural Economics, 74, Hanemann, W.M., 1994, Valuing the Environment Through Contingent Valuation, Journal of Economic Perspectives, 8, Hoehn, J.P. and K.A. Randall, 1987, A Satisfactory Benefit Cost Indicator from Contingent Valuation, Journal of Environmental Economics and Management, 14, Holmes, T.P. and R.A. Kramer, 1995, An Independent Sample Test of Yea-saying and Starting Point Bias in Dichotomous-choice Contingent Valuation, Journal of Environmental Economics and Management, 29, National Oceanic and Atmospheric Administration, 1993, Report of the NOAA Panel on Contingent Valuation, Federal Register, 58, SAS Institute, 1990, SAS/STAT User s Guide, 2, Cary, N.C. Vickrey, W. 1961, Counterspeculation, Auctions, and Competitive Sealed Tenders, Journal of Finance, 16,

6 Table 1. Results of the Experiment Hypothetical Real Hypothetical Real Vickrey Vickrey DC DC Sample size Mean WTP St.d. of mean