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Valuing non-market goods : an analysis of alternative approaches 1982

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VALUING NON-MARKET GOODS: AN ANALYSIS OF ALTERNATIVE APPROACHES by ROBIN SCOTT GREGORY B.A., Y a l e U n i v e r s i t y , 1972 M.A., The U n i v e r s i t y o f B r i t i s h C o l u m b i a , 1974 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY i n THE FACULTY OF GRADUATE STUDIES , " ( I n t e r d i s c i p l i n a r y S t u d i e s ) We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA dune 1982 . Q) Robin S c o t t G r e g o r y , 1982 In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements for an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y available for reference and study. I further agree that permission for extensive copying of t h i s thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. I t i s understood that copying or publication of t h i s thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of The University of B r i t i s h Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 D a t e < T w V** . 1***2, i i ABSTRACT T h i s s t u d y e v a l u a t e s a number o f d i f f e r e n t approaches which have been used t o e s t i m a t e t h e v a l u e o f goods and a c t i v i t i e s which a r e not t r a d e d i n c o n v e n t i o n a l p r i v a t e m a r k e t s . E x p e r i m e n t a l e v i d e n c e i s o b t a i n e d from s u r v e y s o f i n d i v i d u a l s ' e x p r e s s e d p r e f e r e n c e s f o r a number o f d i f f e r e n t goods and s e r v i c e s , w i t h emphasis p l a c e d on v a l u e s a s s o c i a t e d w i t h the n a t u r a l e n v i r o n - ment. Both c o n t i n g e n t and r e a l q u e s t i o n s a r e u sed, w i t h s u b j e c t s ' r e s p o n s e s t o h y p o t h e t i c a l s i t u a t i o n s shown t o c o r r e s p o n d c l o s e l y t o the b e h a v i o r which i s o b s e r v e d when r e a l t r a n s a c t i o n s a r e employed. A c e n t r a l c o n c e r n o f t h i s t h e s i s i s t h e comparison o f measures o f economic v a l u e based on an i n d i v i d u a l ' s w i l l i n g n e s s t o pay t o o b t a i n o r r e t a i n a good and t h e amount o f c o m p e n s a t i o n w h i c h i s demanded i f i t i s r e - l i n q u i s h e d . In c o n t r a s t t o p r e v a i l i n g economic t h e o r y , t h e s e two a p proaches a r e shown t o y i e l d e s t i m a t e s o f v a l u e which i n many c a s e s a r e s y s t e m a t i c a l l y and s i g n i f i c a n t l y d i f f e r e n t . Four p r i n c i p a l r e a s o n s f o r t h i s d i s p a r i t y a r e advanced and each i s d i s c u s s e d i n the l i g h t o f e v i d e n c e d e v e l o p e d as p a r t o f t h i s as w e l l as p r e v i o u s s t u d i e s . These a r e t h e s i z e o f t h e good o r payment l e v e l under c o n s i d e r a t i o n , the a v a i l a b i l i t y o f s u b s t i t u t e s , the p e r c e i v e d l e g i t i m a c y o f the t r a n s a c t i o n and the i n f l u e n c e o f r e s p o n s i b i l i t y c o s t s , r e g r e t o r o t h e r p r o c e s s c o n s i d e r a t i o n s . E m p i r i c a l e v i d e n c e i s a l s o d e v e l o p e d on s e v e r a l o t h e r c o n c e r n s which a r i s e when h y p o t h e t i c a l q u e s t i o n s a r e used t o v a l u e non-market goods. These i n c l u d e t h e s e l e c t i o n o f a p r e f e r r e d payment measure, the s i g n i f i c a n c e o f m o t i v a t i o n a l o r c o g n i t i v e b i a s e s , and the p o t e n t i a l i n f l u e n c e o f both f r a m i n g e f f e c t s and a number o f b e h a v i o r a l c o n s i d e r a t i o n s . In each case the a n a l y s i s i i i o f i n d i v i d u a l s ' r e s p o n s e s l e a d s t o an improved u n d e r s t a n d i n g o f key method- o l o g i c a l c o n s i d e r a t i o n s and s u g g e s t s a d d i t i o n a l r e s e a r c h o p p o r t u n i t i e s . i v TABLE OF CONTENTS ABSTRACT i i LIST OF TABLES AND FIGURES v i C h a p t e r I. INTRODUCTION 1 I I . EVALUATION CONCERNS IN THE MEASUREMENT OF NON-MARKET VALUES .. 4 Measures o f Economic V a l u e 4 C o n c e p t u a l Measures o f Consumer's S u r p l u s 9 E m p i r i c a l Measures o f Consumer's S u r p l u s 15 Consumer's S u r p l u s and t h e S i g n i f i c a n c e o f E n t i t l e m e n t s ... 21 I I I . SURVEY MEASURES OF NON-MARKET ENVIRONMENTAL VALUES 29 IV. BEHAVIORAL CONCERNS IN THE MEASUREMENT OF NON-MARKET VALUES . . 46 The P e r c e p t i o n o f U t i l i t y 46 The S i g n i f i c a n c e o f B i a s 53 M o t i v a t i o n a l B i a s e s . . 55 S t r a t e g i c B i a s 56 I n f o r m a t i o n B i a s 57 H y p o t h e t i c a l B i a s 58 C o g n i t i v e B i a s e s . . 62 R e p r e s e n t a t i v e B i a s 63 A v a i l a b i l i t y B i a s 64 A n c h o r i n g B i a s 64 O v e r c o n f i d e n c e B i a s 65 C o n t e x t u a l B i a s 66 D e b i a s i n g S t r a t e g i e s 67 V. RESEARCH DESIGN AND SURVEY PROCEDURES . . . . . 70 S e l e c t e d Problem A r e a s 70 D i f f e r e n c e s i n Payment and Compensation Measures o f V a l u e . 71 Comparison o f A l t e r n a t i v e H y p o t h e t i c a l Measures 71 Comparison o f H y p o t h e t i c a l and A c t u a l Responses 72 I n f l u e n c e o f Framing E f f e c t s 72 I n f l u e n c e o f A n c h o r i n g B i a s e s 73 I n f l u e n c e o f P r o c e s s V a r i a b l e s 73 V S u r v e y Instrument C h a r a c t e r i s t i c s 73 S e l e c t i o n o f Survey Q u e s t i o n s 76 S u r v e y s Conducted a t t h e U n i v e r s i t y o f B r i t i s h Columbia ... 76 S u r v e y s Conducted a t t h e P r o v i n c i a l Museum 78 V I . ANALYSIS OF SURVEY RESULTS 80 D i f f e r e n c e s i n Payment and Compensation Measures o f V a l u e ... 80 Comparison o f A l t e r n a t i v e H y p o t h e t i c a l Measures . . 95 Comparison o f H y p o t h e t i c a l and A c t u a l Responses 103 I n f l u e n c e o f Framing E f f e c t s 112 I n f l u e n c e o f A n c h o r i n g B i a s e s 118 I n f l u e n c e o f P r o c e s s V a r i a b l e s 132 V I I . SURVEY IMPLICATIONS AND FUTURE RESEARCH PRIORITIES 141 D i s p a r i t i e s i n Payment and Compensation Measures o f V a l u e ... 142 Reasons f o r t h e D i s p a r i t y 144 S i z e 144 L e g i t i m a c y 145 S u b s t i t u t e s 149 P r o c e s s C o n s i d e r a t i o n s 151 I m p l i c a t i o n s o f t h e D i s p a r i t y 154 The Role o f H y p o t h e t i c a l Q u e s t i o n s 157 G e n e r a l Concerns A s s o c i a t e d With H y p o t h e t i c a l Q u e s t i o n s . . . 160 S p e c i f i c Concerns A s s o c i a t e d With H y p o t h e t i c a l Q u e s t i o n s . . 161 V a l u a t i o n Approach 161 Payment Measure 162 M o t i v a t i o n a l B i a s e s 162 C o g n i t i v e B i a s e s 163 Framing E f f e c t s 163 P r o c e s s C o n s i d e r a t i o n s 164 REFERENCES 165 APPENDIX 171 v i LIST OF TABLES AND FIGURES T a b l e s 1 P e r c e n t a g e o f Respondents I n d i c a t i n g D e s i r e t o P a r t i c i p a t e i n H y p o t h e t i c a l L o t t e r i e s . . 98 2 P e r c e n t a g e o f Respondents I n d i c a t i n g D e s i r e t o P a r t i c i p a t e i n A c t u a l L o t t e r i e s 106 F i g u r e s 1 C l a s s e s o f Economic Goods 4 2 Consumer's S u r p l u s Measures: P r i c e Change 11 3 Consumer's S u r p l u s Measures: Q u a n t i t y Change 11 4 A H y p o t h e t i c a l V a l u e F u n c t i o n 51 5 A H y p o t h e t i c a l W e i g h t i n g F u n c t i o n 51 CHAPTER I INTRODUCTION People v a l u e e v e r y t h i n g t h a t t h e y do and use. When p r i v a t e markets e x i s t , t h e p r i c e o f a good p r o v i d e s an i n d i c a t i o n o f i t s r e l a t i v e v a l u e . I n d i v i d u a l s can then e x p r e s s t h e i r p r e f e r e n c e s by d e c i d i n g whether t o pur c h a s e t h e good o r a c t i v i t y a t a s p e c i f i e d p r i c e . When markets do n o t e x i s t and no p r i c e s a r e c h a r g e d t o i n d i v i d u a l u s e r s o f a r e s o u r c e , o t h e r mechanisms must be employed t o gauge t h e v a l u e o f a good o r a c t i v i t y . D e c i s i o n s o f t h i s t y p e a r e q u i t e common, f o r example, when an i t e m i s d i s - t r i b u t e d t h r o u g h t h e p u b l i c s e c t o r . T h i s s t u d y e v a l u a t e s a number o f d i f f e r e n t approaches which have been d e v e l o p e d t o a s s i s t i n e s t i m a t i n g t h e v a l u e o f non-market goods. A c e n t r a l c o n c e r n i s t h e comparison o f two p r i n c i p a l measures o f economic v a l u e , which a r e based on an i n d i v i d u a l ' s w i l l i n g n e s s t o pay f o r a good and th e amount o f compensation t h a t i s demanded i f i t i s r e l i n q u i s h e d . In con- t r a s t t o c o n v e n t i o n a l t h e o r y , t h e r e s u l t a n t measures o f v a l u e a r e shown t o be s y s t e m a t i c a l l y and s i g n i f i c a n t l y d i f f e r e n t . Four p r i n c i p a l r e a s o n s f o r the d i s p a r i t y a r e advanced on the b a s i s o f e x p e r i m e n t a l i n f o r m a t i o n o b t a i n e d i n s u r v e y s o f i n d i v i d u a l s ' e x p r e s s e d p r e f e r e n c e s f o r a number o f d i f f e r e n t goods -and s e r v i c e s . The d i s c u s s i o n emphasizes v a l u e s a s s o c i a t e d w i t h t h e n a t u r a l e n v i r o n - ment, and compares s u r v e y measures o f i n d i v i d u a l s ' e x p r e s s e d p r e f e r e n c e s f o r key e n v i r o n m e n t a l s e r v i c e s - - a i r and water q u a l i t y , t h e p r o t e c t i o n o f t h r e a t e n e d e n v i r o n m e n t s o r animal s p e c i e s , a c c e s s t o u n i n h i b i t e d v i e w s - - 1 2 under a number o f d i f f e r e n t e x p e r i m e n t a l c o n t e x t s . Both h y p o t h e t i c a l and r e a l q u e s t i o n s a r e used t o p r o v i d e measures o f i n d i v i d u a l s ' v a l u e s , w i t h a l t e r n a t i v e a p p r o a c h e s compared on t h e b a s i s o f s u b j e c t s ' r e s p o n s e s . Hypo- t h e t i c a l measures o f v a l u e a r e shown t o c o r r e s p o n d s u r p r i s i n g l y c l o s e l y t o e s t i m a t e s based on i n d i v i d u a l s ' o b s e r v e d b e h a v i o r when r e a l t r a n s a c t i o n s a r e employed. A number o f d i f f i c u l t i e s which may a r i s e when u s i n g h y p o t h e t - i c a l q u e s t i o n s a r e a l s o i n v e s t i g a t e d and d i s c u s s e d i n t h e c o n t e x t o f q u e s t i o n n a i r e r e s p o n s e s as w e l l as p r e v i o u s approaches t o the measurement o f non-market v a l u e s . E x p e r i m e n t a l r e s u l t s a r e p r e s e n t e d f o l l o w i n g a c r i t i c a l r e v i e w o f e a r l i e r r e s e a r c h . The second c h a p t e r o f t h i s s t u d y examines a number o f c o n c e r n s which a r i s e when h y p o t h e t i c a l q u e s t i o n s a r e used t o measure the economic v a l u e o f non-market goods. The d i s c u s s i o n c e n t e r s on t h e d i s p a r i t y between c o n c e p t u a l a p p r o a c h e s , which s u g g e s t t h a t d i f f e r e n c e s between w i l l i n g n e s s t o pay and c o m p e n s a t i o n demanded measures o f consumer's s u r p l u s s h o u l d be n e g l i g i b l e and the c h o i c e between methods t h e r e f o r e i n s i g n i f i c a n t , and an i n c r e a s i n g number o f e m p i r i c a l r e s u l t s which s u g g e s t t h a t d i f f e r e n c e s between.the two methods a r e both p e r v a s i v e and s u b s t a n t i a l . W i d e l y d i v e r - gent e x p l a n a t i o n s f o r t h i s d i s p a r i t y have been advanced, and the i m p l i c a t i o n s o f t h e s e a r e examined i n some d e t a i l . F i n a l l y , t h e s i g n i f i c a n c e o f e n t i t l e - ments and t h e p e r c e i v e d r i g h t s o f i n d i v i d u a l s a r e d i s c u s s e d i n t h e c o n t e x t o f both l e g a l and economic arguments r e g a r d i n g s e l e c t i o n o f t h e more a p p r o p r i a t e measure o f changes i n s o c i a l w e l f a r e . P r e v i o u s s u r v e y measures o f non-market e n v i r o n m e n t a l v a l u e s a r e c o n s i d e r e d i n C h a p t e r I I I . S t u d i e s which have employed h y p o t h e t i c a l measures i n t h e c o n t e x t o f b i d d i n g games, open-ended and c l o s e d - e n d e d e v a l u a t i o n a p p r o a c h e s a r e r e v i e w e d and a number o f q u e s t i o n s a r e r a i s e d r e g a r d i n g both 3 e x p e r i m e n t a l d e s i g n and the i n t e r p r e t a t i o n o f s u r v e y r e s u l t s . P a r t i c u l a r a t t e n t i o n i s p a i d t o the p o t e n t i a l impact o f s e v e r a l s o u r c e s o f b i a s on r e s p o n d e n t s ' e x p r e s s e d measures o f v a l u e . The f o u r t h c h a p t e r o f t h i s s t u d y s t r e s s e s b e h a v i o r a l a s p e c t s o f m e a s u r i n g non-market v a l u e s , and a t t e m p t s t o d e l i n e a t e some o f t h e more i m p o r t a n t a s s u m p t i o n s which have been made r e g a r d i n g the p r o c e s s by which a p e r s o n ' s v a l u e s a r e formed and e v a l u a t e d . A major emphasis o f the c h a p t e r i s t h e i n f l u e n c e o f m o t i v a t i o n a l and c o g n i t i v e s o u r c e s o f b i a s i n t h e com- m u n i c a t i o n o f s y s t e m a t i c a l l y d i s t o r t e d e x p r e s s i o n s o f p r e f e r e n c e . A f i f t h c h a p t e r b r i e f l y e x p l a i n s t h e r e s e a r c h d e s i g n and s u r v e y p r o c e d u r e s t h a t have been used i n t h i s s t u d y . The d i s c u s s i o n o u t l i n e s s i x m a j o r problem a r e a s f o r which e m p i r i c a l d a t a has been o b t a i n e d , p r e s e n t s the d e s i g n o f t h e e x p e r i m e n t s and r e v i e w s t h e i m p l e m e n t a t i o n p r o c e d u r e s which were employed. C h a p t e r V I , which c o n s t i t u t e s t h e h e a r t o f t h e d i s s e r t a t i o n , t hen p r e s e n t s t h e key r e s u l t s o f t h e e x p e r i m e n t a l t e s t s and a n a l y z e s the major f i n d i n g s o f t h e s t u d y . S t a t i s t i c a l t e s t s o f s i g n i f i c a n c e a r e i n c l u d e d f o r each c o m p a r i s o n , a l o n g w i t h a d i s c u s s i o n o f the p r i n c i p a l i m p l i c a t i o n s . The a n a l y s i s o f s t u d y r e s u l t s y i e l d s a d d i t i o n a l i n f o r m a t i o n r e g a r d i n g the b a s i s o f t h e d i s p a r i t y between payment and compensation measures o f v a l u e . T h i s d i s c u s s i o n i s p r e s e n t e d i n C h a p t e r V I I , which a l s o examines the c i r c u m s t a n c e s under which one measure i s l i k e l y t o p r o v i d e a more a c c u r a t e e s t i m a t e o f a n t i c i p a t e d changes i n s o c i a l w e l f a r e . A f i n a l s e c t i o n r e v i e w s t h e r o l e o f h y p o t h e t i c a l methods and c o n c l u d e s t h a t , w h i l e a t t e n t i o n must be p a i d t o a number o f s p e c i f i c c o n c e r n s , c o n t i n g e n t approaches w i l l i n many c a s e s p r o v i d e a p r e f e r r e d measure o f t h e v a l u e which i n d i v i d u a l s p l a c e on a wide range o f non-market goods. 4 CHAPTER II EVALUATION CONCERNS IN THE MEASUREMENT OF NON-MARKET VALUES MEASURES OF ECONOMIC VALUE B e n e f i t s d e r i v e d from t h e consumption o f a good a r e based i n f o u r p r i n c i p a l t y p e s o f i n t e r a c t i o n , as shown i n F i g u r e 1. I f use o f t h e good can be r a t i o n e d , so t h a t i t s p r o v i s i o n t o one i n d i v i d u a l does n o t n e c e s s a r i l y i m p l y i t s p r o v i s i o n t o o t h e r s , t h e n i t i s u t i l i z e d as a p r i v a t e good (Box a ) . e x c l u s i o n non-e x c l u s i o n r i v a l r y n o n - r i v a l r y F i g u r e 1 C l a s s e s o f Economic Goods In t h e c a s e o f e n v i r o n m e n t a l goods t h i s i s t y p i c a l o f v a l u e s d e r i v e d from t h e c o n v e n t i o n a l e x t r a c t i v e o r commodity-based n a t u r a l r e s o u r c e i n d u s t r i e s whose o u t p u t i s s o l d i n w e l l - e s t a b l i s h e d m a r k e t s . E x c l u s i o n i s not p o s s i b l e i n t h e c a s e o f t r u e common-property r e s o u r c e s (Box b) but r i v a l r y among u s e r s — w h e r e consumption by one p e r s o n impedes o r p r o h i b i t s t h e consumption o f an u n d i - m i n i s h e d q u a n t i t y o f the same good by o t h e r s — r e m a i n s . T h i s . i s t h e s o u r c e o f t h e w e l l - a d v e r t i s e d common p r o p e r t y problem which b e s e t s managers o f , f o r example, ocean f i s h e r i e s o r o i l p o o l s . The o c c u r r e n c e o f n o n - r i v a l r y . s i m u l t a n e - o u s l y w i t h e x c l u s i o n i s c h a r a c t e r i s t i c o f a c o l l e c t i v e good (Box c ) such as a 5 campground o r t h e a t r e w i t h unused c a p a c i t y . The use o f p u b l i c goods (Box d ) , t h e g e n e r a l c l a s s o f i n t e r a c t i o n w i t h which t h i s s t u d y i s p a r t i c u l a r l y c o n c e r n e d , i s both n o n - e x c l u s i v e and (up t o some p o i n t ) f r e e o f r i v a l r y among u s e r s . As a number o f a u t h o r s have emphasized, t h e s e c h a r a c t e r i s t i c s n e a r l y d e s c r i b e many p u b l i c l y o r even p r i v - a t e l y p r o v i d e d ( r a t h e r than pure p u b l i c ) goods such as h i g h e r e d u c a t i o n o r sewage d i s p o s a l which a r e produced under c o n d i t i o n s o f v e r y low o r n e g l i g i b l e m a r g i n a l c o s t s (Dorfman, 1966). With a t r u e p u b l i c good, however, t h e r e a r e r e a l l y no m a r g i n a l c o s t s t h a t can be a s s e s s e d a g a i n s t a n o t h e r i n d i v i d u a l ' s use: t h e r e i s both n o n - r i v a l r y i n consumption and n o n - e x c l u s i o n from consump- t i o n . In some c a s e s - - f o r example, f l o u r i d a t e d m u n i c i p a l water s u p p l i e s o r a i r b o r n e r a d i a t i o n — t h e u s e r s t h e m s e l v e s may be u n c o n s c i o u s o r even u n i n t e n - t i o n a l consumers o f t h e p r o d u c t . F o r many p r i v a t e goods t h a t a r e t r a d e d i n r e a s o n a b l y c o m p e t i t i v e m a r k e t s , d i r e c t l y o b s e r v e d p r i c e s can be t a k e n as an i n i t i a l measure o f ec o n - omic v a l u e . But f o r most p u b l i c goods, i n f o r m a t i o n on r e l a t i v e p r i c e s w i l l e i t h e r be u n a v a i l a b l e o r can o n l y be o b t a i n e d from markets t h a t have no r e a l c o m p e t i t i v e b a s i s . In such c a s e s , more i n d i r e c t e s t i m a t i o n p r o c e d u r e s must be employed t o e s t i m a t e t he v a l u e o f a good. I n c r e a s e s i n w e l f a r e t h a t a r e d e r i v e d by i n d i v i d u a l s can then be added t o o b t a i n an e s t i m a t e o f a n t i c i p a t e d changes i n s o c i a l w e l f a r e , a l t h o u g h summation p r o c e d u r e s w i l l d i f f e r f o r p r i v a t e and p u b l i c good b e n e f i t s s i n c e o n l y w i t h a p u b l i c good can a s i n g l e u n i t be s i m u l t a n e o u s l y e n j o y e d by many u s e r s . The c o n t e x t f o r i n t e r p r e t i n g i n f o r m a t i o n on peoples"' v a l u e s w i l l a l s o d i f f e r a c c o r d i n g t o t h e dominant t y p e o f i n t e r a c t i o n t h a t o c c u r s . I f b e n e f i t s a r e l a r g e l y p r i v a t e then both t h e a v a i l a b l e q u a n t i t y and the a s k i n g p r i c e o f th e good w i l l t h e o r e t i c a l l y r e f l e c t i n d i v i d u a l c h o i c e s , and market b e h a v i o r 6 may f u r n i s h a t l e a s t a f i r s t a p p r o x i m a t i o n o f p e o p l e ' s t r u e p r e f e r e n c e s . In th e c a s e o f non-marketed goods, however, t h e i n d i v i d u a l has l i t t l e o r no c h o i c e r e g a r d i n g the q u a n t i t y p r o v i d e d and no d i r e c t means o f r e s p o n s e t o changes i n p r i c e . As a r e s u l t , much o f t h e w e i 1 - d e v e l o p e d l o g i c o f economics must be s e t a s i d e and d e c i s i o n s r e g a r d i n g t h e p r o v i s i o n o r use o f non-marketed r e s o u r c e s a r e f o r c e d t o r e l y more h e a v i l y on p o l i t i c a l judgements and d e c i s i o n h e u r i s t i c s . T h r e e major a p p r o a c h e s have been d e v e l o p e d by s o c i a l s c i e n t i s t s t o a s s i s t i n e s t i m a t i n g the v a l u e o f goods which a r e not bought and s o l d i n con- v e n t i o n a l m a r k e t s . While each o f t h e s e methods has c o n t r i b u t e d t o t h i s s t u d y , both t h e n a t u r e o f t h e non-market goods under c o n s i d e r a t i o n and the d e s i r e t o compare a l t e r n a t e v a l u a t i o n a p p r o a c h e s have r e s u l t e d i n a p r i m a r y r e l i a n c e on i n t e r v i e w and q u e s t i o n n a i r e measures o f v a l u e . The method o f r e v e a l e d p r e f e r e n c e s i s based on the assumption t h a t p e o p l e have t h r o u g h t r i a l and e r r o r a r r i v e d a t a r e p r e s e n t a t i v e e v a l u a t i o n o f t h e i r v a l u e s i n terms o f comparable o r component commodities and a c t i v i t i e s . Both t h e worth o f a good and t h e degree o f u n c e r t a i n t y o r r i s k a s s o c i a t e d w i t h i t s use a r e t h e r e f o r e a s s e s s e d t h r o u g h comparison w i t h o t h e r goods and a c t i v i t i e s whose p e r c e i v e d v a l u e and r i s k s a r e s i m i l a r o r t h r o u g h the summa- t i o n o f t h e i n d i v i d u a l components o f an e x p e r i e n c e . Revealed p r e f e r e n c e t e c h n i q u e s a r e w i d e l y employed t o e s t i m a t e the v a l u e o f non-market goods: examples o f t h e a p p r o a c h i n c l u d e t he Clawson-Knetsch t r a v e l c o s t method f o r p r i c i n g e x t r a - m a r k e t o u t d o o r r e c r e a t i o n e x p e r i e n c e s (Clawson and K n e t s c h , 1966) and numerous h e d o n i c p r i c i n g s t u d i e s o f , f o r example, the r e l a t i o n between a i r q u a l i t y l e v e l s and r e s i d e n t i a l p r o p e r t y v a l u e s o r human h e a l t h (Lave and S e s k i n , 1977). The v a l i d i t y o f r e v e a l e d p r e f e r e n c e t e c h n i q u e s i s dependent on the 7 e q u i v a l e n c e o f compared e x p e r i e n c e s , t he a n a l y s t ' s a b i l i t y t o a c c u r a t e l y ob- s e r v e and r e c o r d t h e i r o c c u r r e n c e i n t h e r e a l w o r l d and the c o m m e n s u r a b i l i t y o f t h e p r i n c i p a l b e n e f i t and r i s k c h a r a c t e r i s t i c s . Where r e g r e s s i o n a n a l y s i s i s employed i t may prove d i f f i c u l t t o s p e c i f y t he r e l e v a n t v a r i a b l e s and t o o b t a i n a c c u r a t e measures o f r e v e a l e d p r e f e r e n c e s w i t h r e s p e c t t o each. The approach may a l s o n o t be r e s p o n s i v e t o u n d r a m a t i c e v e n t s such as i n c r e m e n t a l e n v i r o n m e n t a l d e g r a d a t i o n o r e v o l v i n g s o c i a l and c u l t u r a l a t t i t u d e s . I m p l i e d p r e f e r e n c e methods e v a l u a t e non-market goods i n terms o f the l e g a l and i n s t i t u t i o n a l arrangements which have been d e v e l o p e d t o govern t h e i r use. The ap p r o a c h works b e s t when i n i t i a l d e c i s i o n c r i t e r i a and v a l u a t i o n p r o c e d u r e s have been molded t h r o u g h t i m e on t h e b a s i s o f economic, e c o l o g i c a l and p o l i t i c a l f e e d b a c k i n t o w i d e l y a c c e p t e d and g e n e r a l l y s a t i s f a c t o r y s t a n - d a r d s (Bardach and P u g l i a r e s i , 1977). However, an a n a l y s i s based on i m p l i e d p r e f e r e n c e methods must r e c o g - n i z e t h a t i n f o r m a t i o n r e g a r d i n g c o l l e c t i v e v a l u e s i s l i k e l y t o be ambiguous: c r i t i c i s m o f many i m p l i e d p r e f e r e n c e e v a l u a t i o n s has r e s u l t e d from t he a p p a r e n t l a c k o f c o h e r e n c y o b s e r v e d i n p o l i t i c a l a c t i o n s ( f o r example, a t d i f f e r e n t l e v e l s o f government), l e g a l s t a t u t e s (and t h e i r i n t e r p r e t a t i o n by t h e c o u r t s ) and c o l l e c t i v e e t h i c a l p r i n c i p l e s w i t h r e g a r d t o many q u e s t i o n s o f s o c i a l p r e f e r e n c e . A r e l a t e d problem i s c o n c e r n e d w i t h t h e u n c e r t a i n b e h a v i o r a l r e s p o n s e o f i n d i v i d u a l s and o r g a n i z a t i o n s t o l e g a l and p o l i t i c a l c o n s t r a i n t s , s i n c e f o r m a l r u l e s may be m i s l e a d i n g o r even i g n o r e d and y e t s e r v e t o s t i m u l a t e a c t i o n which i s i n k e e p i n g w i t h an i n d i v i d u a l ' s t r u e v a l u e s . E x p r e s s e d p r e f e r e n c e a p p r o a c h e s r e p r e s e n t a t h i r d a l t e r n a t i v e i n which i n d i v i d u a l s a r e asked t o s t a t e t h e i r p r e f e r e n c e s d i r e c t l y . Well-known v a r i a t i o n s o f the t e c h n i q u e i n c l u d e i n - p e r s o n i n t e r v i e w s and m a i l q u e s t i o n - n a i r e s , b i d d i n g games and p u b l i c p a r t i c i p a t i o n t h r o u g h r e f e r e n d a , h e a r i n g s 3 and p u b l i c m e e t i n g s . I n f o r m a t i o n d e r i v e d from i n t e r v i e w s and q u e s t i o n n a i r e s has been used e x t e n s i v e l y i n r e c e n t y e a r s t o rank e n v i r o n m e n t a l p r e f e r e n c e s on o r d i n a l s c a l e s ( M i l l e r , 1972), t o c a l c u l a t e the economic v a l u e o f r e c r e a - t i o n a l a r e a s ( D a v i s , 1963) and w i l d l i f e management p o l i c i e s ( B i s h o p and H e b e r l e i n , 1979) and t o a n a l y z e the r i s k s and b e n e f i t s a c c r u i n g t o s o c i e t y f r o m d i f f e r e n t a c t i v i t i e s and t e c h n o l o g i e s ( F i s c h h o f f e t a\_., 1976). R e s u l t s o f i t e r a t i v e b i d d i n g t e c h n i q u e s , which ask p a r t i c i p a n t s t o respond a f f i r m a - t i v e l y o r n e g a t i v e l y t o a s e r i e s o f p r o p o s e d p r i c e s , have been used t o e s t i m a t e t h e economic v a l u e o f a n t i c i p a t e d r e d u c t i o n s i n v i s i b i l i t y a s s o c i a t e d w i t h l a r g e r e s o u r c e development p r o j e c t s (Rowe e_t a l _ . , 1980). I n f o r m a t i o n o b t a i n e d d i r e c t l y f r o m p u b l i c p a r t i c i p a t i o n i n d e c i s i o n s r e g a r d i n g p r o j e c t s which promise t o s i g n i f i c a n t l y a l t e r e n v i r o n m e n t a l r e s o u r c e s has i n r e c e n t y e a r s been i n c r e a s i n g l y r e l i e d on by d e c i s i o n makers t o p r o v i d e rough e s t i m - a t e s o f t h e t y p e and s t r e n g t h o f a community's e n v i r o n m e n t a l p r e f e r e n c e s ( B e r g e r , 1977). C e r t a i n a d v a n t a g e s o f the e x p r e s s e d p r e f e r e n c e t e c h n i q u e a r e o b v i o u s : i t f a c i l i t a t e s t h e c o n s i d e r a t i o n o f a wide range o f q u a l i t i e s and i n d i c a t o r s ; i t e l i c i t s c u r r e n t p r e f e r e n c e s and i s h i g h l y r e s p o n s i v e t o changes i n v a l u e s ; i t may a l l o w f o r i n t e r a c t i v e b e h a v i o r and c l a r i f i c a t i o n between i n t e r v i e w e r s and r e s p o n d e n t s . In a d d i t i o n , h y p o t h e t i c a l c o n s i d e r a t i o n s may be e x p l i c i t l y i n c l u d e d as p a r t o f t h e e v a l u a t i o n p r o c e s s . Each o f t h e s e a d v a n t a g e s , how- e v e r , masks a p o t e n t i a l f o r s e r i o u s d i f f i c u l t i e s : t he problem o r i n d i c a t o r s i n q u e s t i o n may be too c o m p l i c a t e d f o r many p e o p l e t o u n d e r s t a n d ; r e s p o n d e n t s may adopt s t r a t e g i c b e h a v i o r s i n o r d e r t o a c h i e v e o r d i s g u i s e u n s t a t e d ob- j e c t i v e s ; and r e s u l t s may f l u c t u a t e w i l d l y o r be i n c o n s i s t e n t w i t h o b s e r v e d b e h a v i o r . While some o f the consequent problems a r e c o n s i d e r e d t o be h i g h l y 9 s u b j e c t i v e , o t h e r s a r e t h o u g h t t o be f a i r l y p r e d i c t a b l e : s t r a t e g i c b e h a v i o r and t h e c o n s c i o u s u n d e r s t a t i n g o f t r u e v a l u e s , f o r example, a r e t h o u g h t t o encourage the c l a s s i c r e s p o n s e o f t h e s o - c a l l e d " f r e e - r i d e r , " s i n c e w i t h no one p r e c l u d e d from t h e consumption o f most p u b l i c goods i t i s i n the i n t e r e s t o f each t o a v o i d c o n t r i b u t i n g t o t h e i r p r o d u c t i o n . The presumed i m p l i c a t i o n s o f t h e s e problems have f r e q u e n t l y l e d t o the b l a n k e t d i s m i s s a l o f e x p r e s s e d p r e f e r e n c e v a l u a t i o n s , a t l e a s t s i n c e the p u b l i c a t i o n o f Samuelson's (1954) i n f l u e n t i a l r e m i n d e r . However, t h e d i s c u s s i o n o f l a t e r c h a p t e r s w i l l s t r e s s t h a t doubts r e g a r d i n g t h e a c c u r a c y o f e x p r e s s e d p r e f e r e n c e measures o f v a l u e r e s t on an e m p i r i c a l base which i s s u r p r i s i n g l y s c a n t y and g e n e r a l l y ambigu- ous. CONCEPTUAL MEASURES OF CONSUMER'S SURPLUS Q u e s t i o n s r e l a t i n g t o the d e f i n i t i o n and measurement o f w e l f a r e changes, and t o methods by which measures o f i n d i v i d u a l p r e f e r e n c e s might be a g g r e g a t e d t o p r o v i d e a g u i d e f o r s o c i a l p o l i c i e s , have been d i s c u s s e d by g e n e r a t i o n s o f e c o n o m i s t s i n g r e a t d e t a i l . In t h i s s e c t i o n I b r i e f l y r e v i e w s e v e r a l a p p r o a c h e s t o t h e s e q u e s t i o n s w i t h i n a framework a p p r o p r i a t e t o the u n d e r s t a n d i n g o f w e l f a r e changes which might f o l l o w from the r e v e l a t i o n o f p r e f e r e n c e s f o r non-market goods. Changes i n w e l f a r e a r e g e n e r a l l y measured i n terms o f money o r w e a l t h , and t h e r e f o r e r e f e r t o changes i n t h e a r e a under an i n d i v i d u a l ' s demand c u r v e . T h i s a r e a i s composed o f two p a r t s , one m e a s u r i n g the amount which must a c t u a l l y be p a i d f o r a good o r a c t i v i t y and a n o t h e r t h e a d d i t i o n a l (maximum) amount an i n d i v i d u a l would be w i l l i n g t o pay. T h i s "consumer's s u r p l u s " was f i r s t r e f e r r e d t o by D u p u i t i n 1844, w i t h the n o t i o n l a t e r p o p u l a r i z e d (and e x p r e s s e d i n terms o f an i n d i v i d u a l ' s u t i l i t y ) by M a r s h a l l , 10 - Changes i n demand can i n t u r n r e s u l t f r o m changes i n p r e f e r e n c e s , changes i n money income (which d i r e c t l y t r a n s l a t e s i n t o w e l f a r e changes) o r changes i n p r i c e s . I t i s w i t h r e s p e c t t o p r i c e s h i f t s t h a t measurement p r o b - lems a r e most f r e q u e n t l y t h o u g h t t o a r i s e , p a r t i c u l a r l y s i n c e t h e contem- p l a t e d changes may be v e r y l a r g e . In t h e extreme c a s e , p r i c e s may i n f a c t change from z e r o (when an a c t i v i t y o r good i s p u b l i c l y p r o v i d e d a t no c o s t ) to i n f i n i t y (when the good i s no l o n g e r a v a i l a b l e ) . I f demand c u r v e s f o r a l l goods were u n i q u e l y d e f i n e d — o r a l t e r n a t i v e l y , i f t h e p r e f e r e n c e f u n c t i o n o f an i n d i v i d u a l r e f l e c t e d o n l y goods bought and s o l d i n c o n v e n t i o n a l p r i v a t e m a r k e t s — t h e d e s c r i p t i o n o f consumer's s u r p l u s measures a s s o c i a t e d w i t h changes i n p r i c e s would be r e l a t i v e l y s t r a i g h t f o r w a r d . U n f o r t u n a t e l y t h i s i s n o t t h e c a s e , and f i v e p o t e n t i a l measures o f w e l f a r e change must be c o n s i - d e r e d ( P e a r c e , 1976). The f i r s t i s t h e change i n o r d i n a r y consumer's s u r p l u s , which i s measured by t h e a r e a above t h e ( h o r i z o n t a l ) p r i c e l i n e but below the (Mar- s h a l l i a n o r d i n a r y ) demand c u r v e . The o t h e r f o u r measures, as d e l i n e a t e d by H i c k s ( 1 9 3 9 ) , can be d e f i n e d w i t h r e s p e c t t o whether payment ( o r r e c e p t i o n ) o f t h e a s s o c i a t e d monetary sums w i l l l e a v e the consumer i n h i s o r h e r i n i t i a l o r f i n a l w e l f a r e p o s i t i o n . These a l t e r n a t i v e s a r e shown i n F i g u r e s 2 and 3, i n terms o f t h e demand and i n d i f f e r e n c e c u r v e s f o r some commodity X^. F o l l o w i n g a p e r - u n i t p r i c e d e c r e a s e , the consumer's budget l i n e ( F i g u r e 2) s h i f t s o u t from t o B^ and market e q u i l i b r i u m s h i f t s from p o i n t X t o p o i n t Y on a h i g h e r i n d i f f e r e n c e c u r v e . In o r d e r t o measure the a s s o c - i a t e d w e l f a r e g a i n , we can imagine t h a t i f . t h e consumer were now t a x e d an amount equal t o CV t h e i n i t i a l l e v e l o f w e l f a r e c o u l d s t i l l be a c h i e v e d a t p o i n t W. However, t h i s would i m p l y a d i f f e r e n t c o m b i n a t i o n o f p u r c h a s e s t h a n a t X. I f t h e consumer were i n s t e a d c o n s t r a i n e d t o buy'the amount o f good X., 11 Wealth o r Income ($) F i g u r e 2 Consumer's S u r p l u s Measures:' P r i c e Change Wealth o r Income ($) ~ " ' V a, <at *• F i g u r e 3 Consumer's S u r p l u s Measures: Q u a n t i t y Change 12 i n d i c a t e d a t p o i n t Y, he o r she c o u l d be t a x e d an amount equal t o CS and r e t a i n the i n i t i a l l e v e l o f w e l f a r e a t p o i n t M. These two c l o s e l y r e l a t e d measures o f w e l f a r e change a r e known as t h e consumer's compensating v a r i a t i o n (CV) and compensating s u r p l u s ( C S ) . P a r a l l e l measures o f e q u i v a l e n t v a r i a t i o n (EV) and e q u i v a l e n t s u r p l u s (ES) r e f e r i n s t e a d t o f i n a l w e l f a r e p o s i t i o n s . From an i n d i v i d u a l ' s p o i n t o f view, however, m a r g i n a l a d j u s t m e n t s i n t h e q u a n t i t y o f most non-market goods a r e not p o s s i b l e . I n s t e a d , a c e n t r a l c h a r a c t e r i s t i c o f many e n v i r o n m e n t a l (as w e l l as o t h e r p u b l i c ) goods i s t h a t t h e y a r e a v a i l a b l e o n l y i n f i x e d q u a n t i t i e s and a t a f i x e d o r z e r o p r i c e . The a p p l i c a t i o n o f CV o r EV measures t o unmarketed goods i s i l l u s t r a t e d i n F i g u r e 3, where i t i s assumed t h a t new l e g i s l a t i o n has i n c r e a s e d t h e a v a i l a b l e q u a n t i t y o f some good from t o and t h e consumer i s thus a b l e t o s h i f t t o p o i n t Y on the h i g h e r i n d i f f e r e n c e c u r v e ( U ^ ) . In such c a s e s , where mar- g i n a l a d j u s t m e n t s i n q u a n t i t y a r e not p o s s i b l e f o r the i n d i v i d u a l , measures o f CV and CS ( o r EV and ES) w i l l c o i n c i d e . F o r a p r i c e i n c r e a s e o r q u a n t i t y d e c r e a s e a CV measure t h e r e f o r e i n d i c a t e s t h e minimum amount o f compensation t h a t must be p a i d f o r an i n d i v i d - u a l t o w i l l i n g l y t o l e r a t e a p r i c e o r q u a n t i t y change. An EV measure, on the o t h e r hand, shows t h e maximum amount t h a t an i n d i v i d u a l would w i l l i n g l y pay t o a v o i d a proposed change. The framework f o r a n a l y z i n g q u a n t i t y ( o r p r i c e ) i n c r e a s e s i s a m i r r o r image o f t h a t s u g g e s t e d f o r q u a n t i t y ( p r i c e ) d e c r e a s e s , whereby the CV a s s o c i a t e d w i t h a p o t e n t i a l w e l f a r e g a i n i s equated t o the EV a s s o c i a t e d w i t h a p o t e n t i a l l o s s . In o t h e r words, f o r a q u a n t i t y i n c r e a s e t h e EV (CV) p r o v i d e s a measure o f an i n d i v i d u a l ' s s e l l i n g ( b u y i n g ) p r i c e w h i l e f o r a q u a n t i t y d e c r e a s e t h e CV (EV) p r o v i d e s a measure o f h i s o r her s e l l i n g ( b u y i n g ) p r i c e ( M i s h a n , 1 9 7 6 ) . 1 '''In most c a s e s , no d i f f e r e n t i a t i o n i s made between i n d i v i d u a l s who 13 C o n v e n t i o n a l economic t h e o r y s u g g e s t s t h a t , i f the income e l a s t i c i t y f o r t h e good under c o n s i d e r a t i o n i s p o s i t i v e , EV measures w i l l be g r e a t e r than CV f o r q u a n t i t y i n c r e a s e s ( o r p r i c e d e c r e a s e s ) w h i l e CV measures w i l l dominate EV i n t h e c a s e o f p r i c e i n c r e a s e s ( o r q u a n t i t y r e d u c t i o n s ) . In F i g u r e 3, WX s h o u l d exceed YZ because the q u a n t i t y o f t h e e n v i r o n m e n t a l good X^ has i n c r e a s e d ; i f t h e consumer were i n s t e a d s h i f t i n g f r o m t o due t o a d e c l i n e i n t h e q u a n t i t y ( o r i n c r e a s e i n the p r i c e ) o f t h e good, the a s s i g n - ment o f CV and EV measures would be r e v e r s e d . In both s i t u a t i o n s , s t a t e d s e l l i n g p r i c e s a r e t h e r e f o r e a n t i c i p a t e d t o exceed e x p r e s s i o n s o f an i n d i v i d - u a l ' s w i l l i n g n e s s t o pay. So l o n g as income e f f e c t s a r e s m a l l , however, and t h e c o n t e m p l a t e d change i n p r i c e o r q u a n t i t y o f the i t e m i s r e l a t i v e l y un- i m p o r t a n t t o r e a l w e a l t h , then d i f f e r e n c e s between t h e two a p proaches a r e e x p e c t e d t o be n e g l i g i b l e and the c h o i c e between measures becomes i n s i g n i f i - c a n t . Henderson (1941:121), f o r example, w r i t i n g s h o r t l y a f t e r H i c k s ' o r i g i n a l j o u r n a l a r t i c l e , s t a t e d t h a t "...we s h a l l n o r m a l l y e x p e c t the f o u r 2 r e s u l t s t o be so c l o s e t o g e t h e r t h a t i t would not m a t t e r which we c h o s e . " F o l l o w i n g t h i s a s s u m p t i o n o f e q u i v a l e n c e , s e v e r a l o f the key t h e o r e - t i c a l c o m p a r i s o n s o f CV and EV a p p r o a c h e s have f e l t f r e e t o d e r i v e e s t i m a t e s o f one measure from s l i g h t m a n i p u l a t i o n s o f the o t h e r . The i n f l u e n t i a l a n a l y - s i s p r e s e n t e d by W i l l i g ( 1 9 7 6 ) , f o r example, f o l l o w s t h i s l i n e o f argument i n p r o v i d i n g a method f o r c a l c u l a t i n g upper and l o w e r bounds on the d i f f e r e n c e s a r e asked the most t h e y would pay t o r e t a i n a good c u r r e n t l y h e l d and t h e i r w i l l i n g n e s s t o pay i n o r d e r t o o b t a i n a d e s i r e d good. S i m i l a r l y , no d i s t i n c -t i o n i s g e n e r a l l y made between the amount o f compensation demanded t o r e l i n -q u i s h a good and the amount r e q u i r e d t o f o r e g o i t s use. However, i t may be i m p o r t a n t f o r t h e r e s e a r c h e r t o c a r e f u l l y d e s c r i b e which o f t h e s e s i t u a t i o n s i s under e x a m i n a t i o n . 2 He then added t h a t " . . . i n any c a s e , when we use the c o n c e p t we do so w i t h o u t making any p r e t e n s i o n s o f a c c u r a c y , " an a p p r o p r i a t e comment i n the days b e f o r e consumer's s u r p l u s measures i n f l u e n c e d the p r o v i s i o n o f u n p r i c e d p u b l i c f a c i l i t i e s . 14 between o r d i n a r y and CV o r EV measures o f consumer's s u r p l u s . He c o n c l u d e s t h a t , i n t h e absence o f s i g n i f i c a n t w e a l t h e f f e c t s , the d i f f e r e n c e w i l l r a r e l y e x c e e d f i v e p e r c e n t . Freeman (1979:47) a g r e e s w i t h W i l l i g t h a t d i f f e r e n c e s among t h e consumer s u r p l u s o p t i o n s "appear t o be s m a l l and a l m o s t t r i v i a l " and t h a t measures o f o r d i n a r y consumer's s u r p l u s w i l l g e n e r a l l y p r o v i d e a c l o s e e s t i m a t e o f p o t e n t i a l w e l f a r e changes. O n l y i f t h e income e l a s t i c i t y o f demand f o r the good i n q u e s t i o n i s h i g h , o r a l t e r n a t i v e l y i f p o t e n t i a l p r i c e o r q u a n t i t y changes a r e l a r g e , does c o n v e n t i o n a l t h e o r y s u g g e s t t h a t d i f f e r e n c e s among t h e measures might prove t o be s u b s t a n t i a l . B o c k s t a e l and M cConnell ( 1 9 8 0 ) , f o r example, argue t h a t W i l l i g ' s c a l c u l a t i o n s a r e c o r r e c t but l a r g e l y i r r e l e v a n t f o r the c a s e o f pub- l i c goods s i n c e t h e y o n l y a p p l y t o t h o s e s i t u a t i o n s where p r i c e changes a r e s m a l l and c l o s e e s t i m a t i o n o f the M a r s h a l l i a n demand c u r v e i s p o s s i b l e . P a r t i c u l a r l y under c i r c u m s t a n c e s where a p u b l i c r e s o u r c e may e i t h e r be newly p r o v i d e d o r w h o l l y e l i m i n a t e d , both t h e s e a ssumptions w i l l o f t e n be v i o l a t e d . K r u t i l l a and F i s h e r (1975) a l s o s t r e s s t h e p o t e n t i a l s i g n i f i c a n c e o f b u d g e t a r y c o n s t r a i n t s , which l i m i t an i n d i v i d u a l ' s e s t i m a t e s o f w i l l i n g n e s s t o pay but n o t w i l l i n g n e s s t o s e l l and c o u l d t h e r e f o r e t e n d t o make the l a t t e r l a r g e r . These c a v e a t s have u n f o r t u n a t e l y p r o v i d e d o n l y s l i g h t a s s i s t a n c e i n p r e d i c t i n g how p e o p l e w i l l r espond t o p o t e n t i a l w e l f a r e changes under l e s s c o n t r o l l e d o r novel s i t u a t i o n s . I n s t e a d , t h e b e s t t h e y can o f f e r i s t h e d i s - q u i e t i n g r e a s s u r a n c e t h a t t h e t h e o r e t i c a l l y a n t i c i p a t e d e q u i v a l e n c e o f s e l l i n g and b u y i n g p r i c e s s h o u l d n o t be assumed i n p r a c t i c e . B o c k s t a e l and McConnell (1980:58), f o r example, c o n c l u d e t h a t i t " i s i m p o s s i b l e t o say whether l a r g e d i f f e r e n c e s between t h e two [ b u y i n g and s e l l i n g measures] s h o u l d be e x p e c t e d The a p p r o a c h i s t y p i c a l o f most r e s e a r c h e r s i n t h e f i e l d , who c o n t i n u e t o argue t h a t EV and CV measures s h o u l d y i e l d e q u i v a l e n t r e s p o n s e s so l o n g as 15 t e s t s a r e p r o p e r l y d e s i g n e d and c o n d u c t e d and income e f f e c t s a r e n o t l a r g e . T h i s a b i l i t y t o walk c o n v e n t i o n a l l i n e s o f argument, however s q u i g g l y t h e y might be, i s d e m o n s t r a t e d by the f o l l o w i n g t o r t u r e d e x p l a n a t i o n g i v e n by Blank e t aj_. (1976:288) i n t h e i r s t u d y o f v i s i b i l i t y p r e f e r e n c e s : A n o t h e r c o n t e n t i o n . . . w a s t h a t ES and CS v a l u e s were n e a r l y e q u a l . A n a l y t i c a l l y , o u r f i n d i n g s s u p p o r t t h i s . The e s t i m a t e d c o e f f i c i e n t s . . . a r e such t h a t t h e v a l u e s s h o u l d , t h e o r e t i c a l l y , be n e a r l y e q u a l . In p r a c t i c e o u r ES and CS v a l u e s were s i g n i f i c a n t l y d i f f e r e n t due t o t h e d i f f e r e n c e between t h e ' w i l l i n g n e s s t o pay' and ' w i l l i n g n e s s t o a c c e p t ' a p p r o a c h e s . EMPIRICAL MEASURES OF CONSUMER'S SURPLUS The w i d e s p r e a d adherence t o an a n t i c i p a t e d e q u i v a l e n c e o f EV and CV measures i s a l l t h e more r e m a r k a b l e i n l i g h t o f t h e growing number o f e m p i r i - c a l r e s u l t s which s u g g e s t t h a t d i f f e r e n c e s between t h e two a p p r o a c h e s a r e n o t o n l y f r e q u e n t l y e n c o u n t e r e d but o f s u b s t a n t i a l magnitude. E v i d e n c e f o r t h i s a s s e r t i o n comes from a number o f r e c e n t e v a l u a t i o n s o f t h e v a l u e o f non- market e n v i r o n m e n t a l goods. The well-known e a r l y s t u d y by Hammock and Brown (1974), f o r example, which attempted t o measure the v a l u e o f w e t l a n d and w a t e r f o w l r e s o u r c e s t o l i c e n s e d h u n t e r s , f o u n d a f o u r - f o l d d i f f e r e n c e between mean w i l l i n g n e s s t o pay and w i l l i n g n e s s t o s e l l r e s p o n s e s . A 1975 s t u d y by E nvironment Canada ( S i n c l a i r , 1975) r e p o r t e d t h a t t h e median compensation demanded by f i s h e r m e n t o p e r m i t d e s t r u c t i o n o f a f a v o u r i t e f r e s h w a t e r f i s h i n g s i t e ' w a s 2.7 t i m e s t h e c o r r e s p o n d i n g measure o f t h e i r maximum w i l l i n g n e s s t o pay t o p r e s e r v e t h e a r e a . B a n f o r d (1979/80) found t h a t the a v e r a g e s t a t e d w i l l i n g n e s s t o pay t o p r e s e r v e a s a l t w a t e r f i s h i n g p i e r was o n l y o n e - t h i r d t h e mean s e l l i n g p r i c e . An a p p l i c a t i o n o f b i d d i n g game p r o c e d u r e s by B r o o k s h i r e and R a n d a l l ( 1 9 7 7 ) , which a t t e m p t e d t o e s t i m a t e the v a l u e o f e l k h u n t i n g i n Wyoming, f o u n d d i f f e r e n c e s between w i l l i n g n e s s t o s e l l and w i l l i n g n e s s t o pay measures o f a p p r o x i m a t e l y seven t o one. 16 A more r e c e n t s t u d y by Rowe e;t al_. (1980) o f the p o t e n t i a l w e l f a r e e f f e c t s o f a i r q u a l i t y changes compared c o n t i n g e n t measures o f i n d i v i d u a l s ' w i l l i n g n e s s t o pay f o r improved v i s i b i l i t y and t h e i r w i l l i n g n e s s t o a c c e p t c o mpensation i n r e t u r n f o r d i m i n i s h e d v i s i b i l i t y . F o r the f o u r s i t u a t i o n s which t h e y t e s t e d , CS measures d e r i v e d i n b i d d i n g games were from f i v e t o s e v e n t e e n t i m e s as g r e a t as t h e i r ES c o u n t e r p a r t s . The a u t h o r s a t t r i b u t e t h i s s u b s t a n t i a l v a r i a t i o n t o the combined i n f l u e n c e o f an income e f f e c t and the f a c t t h a t ES q u e s t i o n s p r e s e n t e d a s u r v e y r e s p o n d e n t w i t h an a d d i t i o n a l t a x payment" whereas CS q u e s t i o n s p r e s e n t e d t h e o f f e r o f a b r i b e . E i t h e r i n t e r - p r e t a t i o n c o u l d c r e a t e an i n c e n t i v e t o b i a s b i d s , w i t h t a x p a y e r s ' r e sentment a t a " v i c t i m pays" p r i n c i p l e showing up as u n d e r s t a t e d ( t h a t i s , l e s s t h a n maximum) e x p r e s s i o n s o f w i l l i n g n e s s t o pay and t h e i r o u t r a g e a t the b r i b e a t t empt r e s u l t i n g i n l a r g e o r i n f i n i t e b i d s . As f u r t h e r e v i d e n c e t h a t CS r e s p o n d e n t s b r i s t l e d a t " b e i n g bought o f f t o p e r m i t p o l l u t i o n , " the a u t h o r s c i t e t h e f a c t t h a t " s l i g h t l y o v e r o n e - h a l f o f the sample r e q u i r e d i n f i n i t e c o m p e n s a t i o n o r r e f u s e d t o c o o p e r a t e w i t h t h e CS p o r t i o n o f t h e s u r v e y i n s t r u - ment." (Rowe e_t a l _ . , 1980:9). 3 T h i s f i n d i n g i s s t r i k i n g , and would a p p e a r t o c a l l i n t o s e r i o u s q u e s t i o n t h e d i r e c t c o m p a r i s o n o f ES and CS measures. While Rowe, d'Arge and B r o o k s h i r e (1980) i m p l y t h a t n o n - c o o p e r a t i o n i s due t o a c o n s c i o u s r e f u s a l t o be b r i b e d , i t seems p o s s i b l e t h a t a t l e a s t f o r some r e s p o n d e n t s the d i f f i c u l t y may be c o g n i t i v e r a t h e r than m o t i v a t i o n a l — i n o t h e r words, t h a t the t y p e o f exchange under c o n s i d e r a t i o n (money v e r s u s r i g h t s t o e n v i r o n m e n t a l q u a l i t y ) But a p p a r e n t l y u n s u r p r i s i n g , s i n c e a f o o t n o t e t o t h e 1980 s t u d y s t a t e s t h a t t h e 1974 and 1976 s u r v e y s " . . . e n c o u n t e r e d s i m i l a r p e r c e n t a g e s o f game r e j e c t i o n , z e r o b i d s , and p e r c e n t a g e s o f c o o p e r a t i o n . " (Rowe e t a l . , 1980:17). 17 4 perhaps makes l i t t l e s e n s e . C e r t a i n l y a non-response r a t e o f t h i s magnitude i m p l i e s t h a t t h e r e i s something v e r y d i f f e r e n t about the way i n which ES and CS q u e s t i o n s a r e p e r c e i v e d , and s u g g e s t s t h a t t h e i r s p e c i f i c a t i o n s may prove t o be s u b s t a n t i a l l y l e s s s i m i l a r than t h e a u t h o r s m a i n t a i n . In f a c t , t h e r e i s a n agging sense t h r o u g h o u t t h e a r t i c l e t h a t t h e y keep h o p i n g t h e s e r e s u l t s w i l l go away so t h a t t h e y can p r o c e e d w i t h the f i n e - t u n i n g o f b i d d i n g approaches and n o t have to d e a l w i t h t h e fundamental q u e s t i o n s r a i s e d by s e v e n t e e n - f o l d d i f f e r e n c e s i n v a l u e between e q u i v a l e n t measures o r the i m p l i c a t i o n s o f a n a l y z i n g s u r v e y r e s u l t s when ( f o r CS q u e s t i o n s ) n o n - r e s p o n d e n t s outnumber r e s p o n d e n t s . A p r o v o c a t i v e comparison o f a l t e r n a t e consumer's s u r p l u s measures was u n d e r t a k e n by B i s h o p and H e b e r l e i n (1979) as p a r t o f t h e i r s t u d y o f t h e market f o r e a r l y season goose h u n t i n g p e r m i t s i n W i s c o n s i n . CV and EV e s t i m - a t e s a r e compared on the b a s i s o f commensurate s u r v e y d a t a and, because t h e y e v a l u a t e d a p u b l i c r e s o u r c e which was r a t i o n e d i n d i v i s i b l e u n i t s , t h e a u t h o r s were a l s o a b l e t o d e v e l o p a d i r e c t comparison o f h y p o t h e t i c a l and a c t u a l measures o f i n d i v i d u a l s ' w i l l i n g n e s s t o a c c e p t compensation t h r o u g h 5 t h e c r e a t i o n o f a s i m u l a t e d market f o r h u n t i n g p e r m i t s . R e s u l t i n g d i f f e r - ences i n consumer's s u r p l u s were q u i t e s t r i k i n g , d e s p i t e the f a c t t h a t both income e f f e c t s and the income e l a s t i c i t y o f demand f o r h u n t i n g p e r m i t s s h o u l d T h i s p o s s i b i l i t y was b r i e f l y n o t e d i n the s t u d y by Blank e t a l . (1976:281)., which s u g g e s t e d t h a t a r e s p o n d e n t ' s u t i l i t y map may " e x h i b i t l e x i -c o g r a p h i c o r d e r i n g , " so t h a t he i s s i m p l y unaware ( i n t h i s c o n t e x t ) o f the i m p l i c a t i o n s o f d e c r e a s e d v i s i b i l i t y , o r t h a t the c o n d i t i o n s o f the b i d d i n g game may prove s u f f i c i e n t l y n o vel so t h a t r e s p o n d e n t s "may be u n a b l e t o c o -o p e r a t e . " (emphasis added). However, the a u t h o r s o f the s t u d y were not i n c l i n e d t o pursue t h e i m p l i c a t i o n s o f t h e s e p e r c e p t i o n s , nor d i d t h e y c l e a r l y d i s t i n g u i s h t h o s e s i t u a t i o n s i n which such i n f l u e n c e s would prove t o be a s y m e t r i c . 5 A c t u a l measures o f consumer's w i l l i n g n e s s t o pay f o r p e r m i t s c o u l d not be o b t a i n e d due t o t h e e x i s t e n c e o f a number o f i n s t i t u t i o n a l c o n s t r a i n t s . 18 be q u i t e s m a l l . H y p o t h e t i c a l r e s p o n s e s ranged from an a v e r a g e w i l l i n g n e s s t o s e l l v a l u a t i o n o f $101.00 p e r p e r m i t t o an a v e r a g e w i l l i n g n e s s t o pay v a l u a t i o n o f o n l y $21.00. The a v e r a g e c a s h o f f e r a c c e p t a n c e o f $63.00 was i n t e r m e d i a t e t o both h y p o t h e t i c a l v a l u e s and s l i g h t l y more than d o u b l e r e s - pondents' a v e r a g e e s t i m a t e based on t h e i r t r a v e l c o s t s . D e s p i t e t h i s a c c u m u l a t i n g e v i d e n c e o f s u b s t a n t i a l d i f f e r e n c e s i n ob- s e r v e d e s t i m a t e s o f e q u i v a l e n t and compensating v a r i a t i o n , most r e s e a r c h e r s m a i n t a i n t h e i r f a i t h i n the e q u i v a l e n c e o f p r o p e r l y measured payment and c ompensation p r i c e s and r e t a i n hope i n an e x p l a n a t i o n o f o b s e r v e d v a r i a t i o n based on e i t h e r u n d i s c o v e r e d income e f f e c t s o r p e r s i s t e n t r e s p o n s e b i a s e s . B o c k s t a e l and McConnell ( 1 9 8 0 : 6 1 ) , f o r example, agr e e t h a t e c o n o m i s t s s h o u l d be c a u t i o n e d " a g a i n s t the r e a dy a s s u m p t i o n t h a t w i l l i n g n e s s t o pay and w i l l i n g n e s s t o . s e l l a r e good a p p r o x i m a t i o n s o f one a n o t h e r " but remain w i l l i n g t o a t t r i b u t e e m p i r i c a l d i f f e r e n c e s t o an u n i d e n t i f i e d income e f f e c t . S i n c e t h e p r e s e n c e o f income e f f e c t s has o f t e n been d i f f i c u l t t o j u s t i f y g i v e n the s m a l l sums o f money i n q u e s t i o n , o t h e r r e s e a r c h e r s have l e a n e d on r e s p o n s e b i a s e s f o r t h e i r p r i n c i p a l e x p l a n a t o r y s u p p o r t . Dwyer and Bowes (1978:1008) speak f o r t h i s group when t h e y a s s e r t t h a t "the p r e c i s e e x p l a n a t i o n f o r t h e wide d i f f e r e n c e i s not y e t known, but weakness i n the s u r v e y i n s t r u m e n t seems l i k e l y . " B i s h o p and H e b e r l e i n (1980:34) a r e a l s o s t e a d f a s t : w h i l e t h e y c o n c l u d e t h a t " h y p o t h e t i c a l measures o f both w i l l i n g n e s s t o pay and w i l l i n g - ness t o s e l l a p p e a r t o be b i a s e d , but i n o p p o s i t e d i r e c t i o n s " t h e y e m phatic- a l l y s t a t e t h a t "our r e s u l t s do n o t s u p p o r t t h e i r ^ s u g g e s t i o n t h a t such l a r g e d i f f e r e n c e s a r e i n d i c a t i v e o f i m p o r t a n t economic r e l a t i o n s h i p s which t r a d i t i o n a l t h e o r y has o v e r l o o k e d . " The r e f e r e n c e i s t o the e a r l i e r s t u d i e s by Gordon and K n e t s c h (1979) and Meyer (1979). 19 However, a s m a l l number o f e c o n o m i s t s h a v e , r e c e n t l y begun t o q u e s t i o n the r o b u s t n e s s o f b o t h income e f f e c t and b i a s e x p l a n a t i o n s w h i l e e x p l o r i n g t h e p o s s i b i l i t y t h a t o t h e r f a c t o r s might l i e b e h i n d r e p o r t e d d i f f e r e n c e s i n payment and c ompensation r e s p o n s e s . Gordon and Knetsch (1979:6), f o r example, r e v i e w e d a number o f p u b l i s h e d e m p i r i c a l s t u d i e s and c o n c l u d e d t h a t o b s e r v e d d i f f e r e n c e s i n w i l l i n g n e s s t o pay and w i l l i n g n e s s t o s e l l r e s p o n s e s must be a t t r i b u t a b l e t o more than "the n o r m a l l y s u s p e c t e d " income e f f e c t o r r e s p o n s e b i a s e s . Meyer (1979:227) makes a s i m i l a r p o i n t , a r g u i n g t h a t t h e c o n t e m p l a t e d changes i n e n v i r o n m e n t a l q u a l i t y a r e f r e q u e n t l y s u f f i c i e n t l y l a r g e so t h a t W i l l i g ' s c o n c l u s i o n o f e q u i v a l e n c e between payment and c ompensation measures "cannot be s u s t a i n e d from a v a i l a b l e e m p i r i c a l d a t a . " One c r i t i c i s m o f s e v e r a l e m p i r i c a l s t u d i e s which have o b s e r v e d l a r g e v a r i a t i o n s i n e q u i v a l e n t and compensating v a r i a t i o n measures o f v a l u e i s t h a t both the payment and c ompensation a l t e r n a t i v e s posed h y p o t h e t i c a l c o u r s e s o f a c t i o n . In a r e c e n t d i s c u s s i o n p a p e r , Knetsch (1981) r e p o r t e d the r e s u l t s o f a s i m p l e e x p e r i m e n t which a d d r e s s e d t h i s c r i t i c i s m by h a v i n g p a r t i c i p a n t s choose between a l t e r n a t i v e l u n c h e o n o f f e r i n g s i n a s i t u a t i o n i n v o l v i n g e i t h e r an immediate c a s h payment o r t h e a c c e p t a n c e o f a c t u a l monetary compensation. A l t h o u g h the t e s t was c o n d u c t e d under c o n d i t i o n s which would be e x p e c t e d t o d i m i n i s h t h e i r d i v e r g e n c e , t h e a v e r a g e a c t u a l b u y i n g p r i c e was s i g n i f i c a n t l y l e s s t h a n the r e p o r t e d measure o f a v e r a g e compensation demanded. F u r t h e r m o r e , the i n f l u e n c e o f income o r w e a l t h e f f e c t s must have been n e g l i g i b l e due t o the s m a l l magnitude o f t h e v a l u e a t i s s u e ( w h i c h , as Knetsch d r y l y o b s e r v e s , amounted t o o n l y "a s i n g l e p o r t i o n o f cooked f i s h " ) . T h a l e r (1980) a s s e r t s t h a t r e p o r t e d d i f f e r e n c e s i n payment and com- p e n s a t i o n measures may i n p a r t be a t t r i b u t a b l e t o a p e r c e i v e d d i s t i n c t i o n between o u t - o f - p o c k e t and o p p o r t u n i t y c o s t s , w i t h t h e f o r m e r viewed as l o s s e s and t h e l a t t e r viewed as f o r e g o n e g a i n s . R e f e r r i n g t o the d i f f e r e n t i a l 20 e v a l u a t i o n o f l o s s e s and g a i n s p r e d i c t e d by the v a l u e f u n c t i o n o f p r o s p e c t t h e o r y , T h a l e r a r g u e s t h a t goods i n c l u d e d i n a p e r s o n ' s endowment (and t h e r e - f o r e c a p a b l e o f b e i n g s o l d ) w i l l be more h i g h l y v a l u e d than t h o s e n o t h e l d . He r e f e r s t o t h i s u n d e r w e i g h t i n g o f o p p o r t u n i t y c o s t s as the "endowment e f f e c t . " Both Knetsch and T h a l e r r e g a r d t h e i r f i n d i n g s as p r e l i m i n a r y and acknowledge t h e need f o r a d d i t i o n a l e x p e r i m e n t a l t e s t s o f how p e o p l e a c t u a l l y behave when f a c e d w i t h t h e o p p o r t u n i t y t o p u r c h a s e o r t o s e l l a p a r t i c u l a r good. However, both r e s e a r c h e r s i m p l y t h a t key elements m i s s i n g from conven- t i o n a l e x p l a n a t i o n s o f d i v e r g e n c e s i n a l t e r n a t i v e consumer's s u r p l u s measures a r e l i k e l y t o be c o n c e r n e d w i t h b e h a v i o r a l a s p e c t s o f the way i n which p r e f e r - ences a r e formed and communicated. I a g r e e w i t h t h i s argument, and a t t e m p t t o add t o the e v i d e n c e i n s u p p o r t o f t h i s p o s i t i o n i n the subsequent c h a p t e r s . CONSUMER'S SURPLUS AND THE SIGNIFICANCE OF ENTITLEMENTS Two r e l e v a n t and c l o s e l y l i n k e d s e t s o f q u e s t i o n s have been l a r g e l y i g n o r e d i n t h e p r e v i o u s d i s c u s s i o n . A l t h o u g h both i s s u e s a r e enormously com- p l e x , I b e l i e v e t h a t t h e y r e q u i r e a t l e a s t a c u r s o r y n o t i c e i n the c o n t e x t o f t h e p r e s e n t i n q u i r y . A f i r s t q u e s t i o n asks what i n d i v i d u a l measures o f w e l f a r e can a s s e r t r e g a r d i n g changes i n s o c i a l w e l f a r e and c h o i c e s among p u b l i c r e s o u r c e p o l i c y o p t i o n s . A second q u e s t i o n asks what measures o f s o c i a l w e l - f a r e can a s s e r t r e g a r d i n g c h o i c e s between w i l l i n g n e s s t o pay and compensation demanded as the b a s i s o f r e s o u r c e p o l i c y d e c i s i o n s . T h r e e b a s i c approaches t o t h e f i r s t q u e s t i o n have been d e v e l o p e d by e c o n o m i s t s . A f i r s t c r i t e r i o n was a d v o c a t e d by V i I f r e d o P a r e t o , w r i t i n g i n t h e e a r l y p a r t o f t h i s c e n t u r y . H i s r u l e i s s t r a i g h t f o r w a r d : a p o l i c y 21 r e p r e s e n t s an unambiguous improvement i n s o c i a l w e l f a r e i f i t makes no one worse o f f and a t l e a s t one p e r s o n b e t t e r o f f . The c r i t e r i o n a v o i d s any i n t e r - p e r s o n a l comparison o f w e l f a r e change, but i s o f l i m i t e d u s e f u l n e s s s i n c e n e a r l y e v e r y p o t e n t i a l a c t i o n o f government u n a v o i d a b l y imposes c o s t s on some p a r t y . T h i r t y y e a r s l a t e r , K a l d o r (1939) and H i c k s (1943) a d d r e s s e d t h i s l i m i t a t i o n t h r o u g h development o f a second c r i t e r i o n based on t h e c o n c e p t o f c o m p e n s a t i o n : a p o l i c y i s s a i d t o i n c r e a s e s o c i a l w e l f a r e i f t h o s e who g a i n can f u l l y compensate ( u s i n g money payments) t h o s e who l o s e and s t i l l c o n s i d e r t h e i r f i n a l p o s i t i o n t o r e p r e s e n t a w e l f a r e improvement. M a x i m i z a t i o n o f t h e n e t v a l u e o f o u t p u t ( t h a t i s , a l l o c a t i v e e f f i c i e n c y ) i s t h e r e f o r e assumed t o form t h e b a s i s o f s o c i a l p o l i c y c h o i c e . However, the compensation need n o t a c t u a l l y be p a i d and as a r e s u l t some i n d i v i d u a l s w i l l l i k e l y e x p e r i e n c e an a c t u a l w e l f a r e l o s s ( t h a t i s , t h e p o s i t i o n i s one o f p o t e n t i a l r a t h e r than a c t u a l P a r e t o improvement). The H i c k s - K a l d o r c r i t e r i o n has undergone a number o f r e f i n e m e n t s i n o r d e r t o improve i t s u s e f u l n e s s as a b a s i c t o o l o f modern c o s t - b e n e f i t a n a l y s i s . S c i t o v s k y ( 1 9 4 1 ) , f o r example, r e c o g n i z e d t h a t t h e c r i t e r i o n may n o t o n l y a d v o c a t e a change from p o l i c y A t o B t o i n c r e a s e w e l f a r e but t h a t under some c i r c u m s t a n c e s ( p a r t i c u l a r l y i f the change i s l a r g e ) moving back a g a i n from B t o A would a l s o b r i n g about a w e l f a r e improvement. He t h e r e f o r e s u g g e s t e d t h a t compensation t e s t s must work i n o n l y one d i r e c t i o n . L i t t l e (1957) l a t e r a r g u e d t h a t a d o p t e d p o l i c i e s must a l s o improve income d i s t r i b u - t i o n . Haveman and Weisbrod (1975) asked whether a p r o j e c t c o u l d be s a i d t o unambiguously i n c r e a s e economic w e l f a r e u n l e s s compensation were a c t u a l l y p a i d (which would r e s t o r e P a r e t o c o n d i t i o n s ) o r u n l e s s an e x p l i c i t d e c i s i o n were made t h a t r e d i s t r i b u t i o n s h o u l d be imposed ( t h a t i s , t h a t l o s e r s s h o u l d 22 have been made worse o f f ) . In a d d i t i o n , t h e y e x p l i c i t l y r e c o g n i z e d t h e s i g - n i f i c a n c e o f t r a n s a c t i o n s c o s t s and warned t h a t i n f o r m a t i o n a l , p o l i t i c a l and a d m i n i s t r a t i v e r e q u i r e m e n t s a s s o c i a t e d w i t h t h e d e t e r m i n a t i o n and d i s t r i b u t i o n o f payments may be s u f f i c i e n t l y h i g h so as t o b r i n g i n t o q u e s t i o n t h e d e s i r a - b i l i t y o f an o t h e r w i s e a t t r a c t i v e p r o j e c t . Both t h e P a r e t o and H i c k s - K a l d o r c r i t e r i a seek t o a d d r e s s the q u e s t i o n o f w e l f a r e changes w i t h o u t making e x p l i c i t v a l u e judgements r e g a r d i n g the r e l a t i v e d e s e r v i n g n e s s o f a f f e c t e d i n d i v i d u a l s . Bergson (1937) and o t h e r s a d v o c a t e d a t h i r d a p p r o a c h by a r g u i n g t h a t the f o r m u l a t i o n o f j u s t such a s o c i a l w e l f a r e f u n c t i o n may be a n e c e s s a r y p a r t o f p u b l i c p o l i c y f o r m a t i o n . A l t h o u g h t h e d e t e r m i n a t i o n o f any w e i g h t i n g f u n c t i o n i s f r a u g h t w i t h o b v i o u s p r o b l e m s , i t s c r e a t i o n would a l l o w t h e a p p r o v a l o f p r o j e c t s whose ne t bene- f i t s a r e n e g a t i v e (and would t h e r e f o r e be r e j e c t e d under the P a r e t o o r una- dorned H i c k s - K a l d o r c r i t e r i a ) but which n e v e r t h e l e s s r e s u l t i n an improvement i n a d e s i r e d i n d i c a t o r ( f o r example, income d i s t r i b u t i o n ) . A l l t h r e e a p p r o a c h e s have c o n t r i b u t e d t o the development o f modern c o s t - b e n e f i t a n a l y s i s as a t o o l f o r c h o o s i n g among a l t e r n a t i v e c o u r s e s o f a c t i o n on the b a s i s o f t h e i r a n t i c i p a t e d c o n t r i b u t i o n t o n e t s o c i a l w e l f a r e . In t h o s e c a s e s where l e g a l r i g h t s o f i n d i v i d u a l s a r e c l e a r l y d e f i n e d o r w i d e l y acknowledged, s o c i a l c o s t - b e n e f i t a n a l y s i s can be viewed as a d e c i s i o n t e c h - n i q u e which i s c o n v e n t i o n a l l y employed when the absence o f a market o r the p r e s e n c e o f s i g n i f i c a n t t r a n s a c t i o n s c o s t s , f r e e r i d e r p r e f e r e n c e r e v e l a t i o n problems and the l i k e have e f f e c t i v e l y p r e v e n t e d p r i v a t e i n d i v i d u a l s from u n d e r t a k i n g an a c t i o n o f p o t e n t i a l s o c i a l b e n e f i t . Under most c i r c u m s t a n c e s , t h e d e t e r m i n a t i o n o f v a l u e s a s s o c i a t e d w i t h s p e c i f i c goods o r a c t i v i t i e s w i l l n o t depend on the a s s i g n m e n t o f l e g a l r i g h t s . O n l y i f an i n d i v i d u a l i s f a c e d w i t h a c h o i c e between p a y i n g a s p e c i - 23 f i e d sum t o o b t a i n t h e r i g h t s t o an a d d i t i o n a l a s s e t o r a c c e p t i n g compensa- t i o n f o r t h e l o s s o f one which i s p r e s e n t l y owned w i l l a q u e s t i o n r e g a r d i n g e n t i t l e m e n t s g e n e r a l l y emerge. In such c a s e s , however, the measurement o f changes i n w e l f a r e a s s o c i a t e d w i t h a l t e r n a t e a c t i o n s may be i n t i m a t e l y l i n k e d w i t h t h e a s s i g n m e n t o f r i g h t s t o t h e a f f e c t e d r e s o u r c e u s e s . Moreover, i n a l a r g e number o f c r i t i c a l s o c i a l i s s u e s — w h e t h e r the c o n s t r u c t i o n o f n u c l e a r power p l a n t s s h o u l d be p e r m i t t e d ; whether p o p u l a t i o n l i m i t s s h o u l d be en- f o r c e d i n t h i s c i t y - - t h e r e s u l t a n t d i f f e r e n c e s between measures o f i n d i v i d u a l s ' w i l l i n g n e s s t o pay and c ompensation demanded a r e l i k e l y t o be l a r g e . T h i s i s where t h e second o f my two q u e s t i o n s e n t e r s t h e p i c t u r e : what can measures o f s o c i a l w e l f a r e t e l l us about c h o i c e s between payment and c o m p e n s a t i o n p r i c e s as t h e b a s i s f o r p u b l i c r e s o u r c e p o l i c y d e c i s i o n s ? The q u e s t i o n a r i s e s i n the c a s e o f u s e r s ' r i g h t s g overned e i t h e r by p r o p e r t y r u l e s , under which t h e v a l u e o f an a s s e t i s d e t e r m i n e d by the s e l l e r ' s minimum v o l u n t a r y a s k i n g p r i c e , o r by l i a b i l i t y r u l e s , under which an a s s e t ' s v a l u e i s d e t e r m i n e d by the s t a t e . The c o n v e n t i o n a l p r a c t i c e o f b o t h c o s t - b e n e f i t a n a l y s i s and the c o u r t s f a v o r s t h e s e t o f e x i s t i n g r u l e s as the b a s i s f o r d e c i d i n g whether payments s h o u l d be made to p u r c h a s e a good o r t o compensate f o r i t s l o s s . Once a s p e c i f i c i n t e r p r e t a t i o n o f t h e s t a t u s quo has been t a k e n as a b a s e l i n e , i n c r e a s e s i n t h e q u a n t i t y o f the good ( f o r example, e n v i r o n - mental q u a l i t y ) beyond t h a t p o i n t s h o u l d i n most c a s e s r e f l e c t an i n d i v i d u a l ' s w i l l i n g n e s s t o pay f o r t h e improvements, whereas measures o f a p e r s o n ' s com- p e n s a t i o n demanded s h o u l d g e n e r a l l y be employed i f d e c r e a s e s i n the good a r e a t i s s u e . Many o f the b a s i c a n a l y t i c t o o l s employed by the two d i s c i p l i n e s a l s o a p p e a r t o be q u i t e s i m i l a r ( C a l a b r e s i , 1968). For example, the H i c k s - K a l d o r c r i t e r i o n o f p o t e n t i a l c o m p e n s a t i o n has been w i d e l y employed by the c o u r t s i n 24 o r d e r t o h e l p d e t e r m i n e whether moving from one s e t o f e n t i t l e m e n t s t o a n o t h e r would i n c r e a s e s o c i a l w e l f a r e t o the e x t e n t t h a t t h e advantages t o t h o s e who g a i n outweigh the d i s a d v a n t a g e s t o t h o s e who l o s e (Kennedy, 1981). In such c a s e s , v a l u e s a r e g e n e r a l l y s e t by t h e i n d i v i d u a l s i n v o l v e d as i t i s assumed t h a t t h e y know what i s b e s t f o r t h e m s e l v e s ; i f n o t , the s t a t e may p a t e r n a l - i s t i c a l l y i n t e r v e n e and make the r e q u i r e d d e t e r m i n a t i o n s . In e i t h e r s i t u a t i o n , t h e e c o n o m i c a l l y e f f i c i e n t ( P a r e t o o p t i m a l ) s o l u t i o n w i l l v a r y w i t h t h e i n i t i a l d i s t r i b u t i o n o f w e a l t h , p a r t o f which i s r e f l e c t e d i n the i n i t i a l d i s t r i b u t i o n o f e n t i t l e m e n t s . M oreover, r e c e n t i n t e r e s t i n both p r o f e s s i o n s i n t h i s g e n e r a l t y p e o f q u e s t i o n f o l l o w s i n p a r t from a p p l i c a t i o n o f the i n f l u e n t i a l Coase theorem (Coase , 1960). Coase, an e c o n o m i s t , argued t h a t i n the absence o f t r a n s - a c t i o n s c o s t s r e s o u r c e s would be a l l o c a t e d e f f i c i e n t l y r e g a r d l e s s o f how e n t i t l e m e n t s were i n i t i a l l y s e t . In a r e a l w o r l d r e p l e t e w i t h t r a n s a c t i o n s c o s t s , i t f o l l o w s t h a t e n t i t l e m e n t s may be s e t i n e f f i c i e n t l y and t h a t a p p l i c a - t i o n o f t h e H i c k s - K a l d o r c r i t e r i o n would then p r o v i d e a means by which t o p r e f e r one a l l o c a t i o n o f e n t i t l e m e n t s o v e r a n o t h e r ( C a l a b r e s i , 1972). While t h e l o g i c r e l i e s on e c o n o m i c s , t h e a c t u a l d e c i s i o n r e g a r d i n g t h e s e t t i n g o f e n t i t l e m e n t s must be u n d e r t a k e n by t h e s t a t e o r t h e c o u r t s . T h i s i s a l s o c o n s i s t e n t w i t h Coase 1 p r e s c r i p t i o n , which c a l l e d f o r t h e s t a t e t o i n t e r v e n e on a c a s e by c a s e b a s i s whenever a f r e e p r o c e s s o f n e g o t i a t i o n was i n h i b i t e d i n o r d e r t o a t t e m p t t o c r e a t e an a c t u a l a l l o c a t i o n ( i n the p r e s e n c e o f t r a n s - a c t i o n s c o s t s ) c o r r e s p o n d i n g t o t h e h y p o t h e t i c a l outcome t h a t c o s t l e s s b a r g a i n - i n g would have produced i n the p r e s e n c e o f e x i s t i n g e n t i t l e m e n t s . Some e c o n o m i s t s , n o t a b l y F i s h e r and K r u t i l l a ( 1 9 7 5 ) , have a r g u e d t h a t i n t h e c a s e o f p u b l i c l y owned r e s o u r c e s f o r which e x p l i c i t p r o p e r t y r i g h t s have n o t been a l l o c a t e d , t h e i r a s s i g n m e n t s h o u l d f a v o r t h e e n v i r o n m e n t a l l y l e a s t 25 d e s t r u c t i v e use. As p r e v i o u s l y n o t e d , p r o p e r t y r i g h t s can be d i s t i n g u i s h e d f r o m l e s s e r forms o f l e g a l e n t i t l e m e n t on t h e b a s i s o f t h e p r e sumption t h a t an owner's minimum v o l u n t a r y s e l l i n g p r i c e i s t h e p r o p e r measure o f v a l u e . A c c o r d i n g l y , any d e v e l o p e r who wished t o impose a move from t h e s t a t u s quo would need to meet the a s k i n g p r i c e o f c u r r e n t u s e r s o r t h e i r a g e n t s ( H e l l e r , 1976): an e f f i c i e n t change would t h e n o n l y be p o s s i b l e i f the CV o f the d e v e l o p e r s e xceeded t h e EV r e c e i v e d by t h e r e s o u r c e owners. F i s h e r and K r u t i l l a argue t h a t t h e d i s t i n c t i o n i s p a r t i c u l a r l y i m p o r t a n t when an i r r e v e r - s i b l e development i s c o n t e m p l a t e d ; t h a t i s , one f o r which no f e a s i b l e t e c h n i c a l means o f r e s t o r a t i o n e x i s t s w i t h i n an a c c e p t a b l e p e r i o d o f t i m e . A l t e r n a - t i v e l y , p r i o r i t y c o u l d be a s s i g n e d t o c u r r e n t u s e r s o f the a r e a i n q u e s t i o n , which would r e q u i r e an e x p l i c i t d e c i s i o n r e g a r d i n g t h i r d - p a r t y e f f e c t s o r the r i g h t s o f n on-users who might n e v e r t h e l e s s e x p e r i e n c e a change i n w e l f a r e . In t h i s c a s e , t h e accompanying measure o f b e n e f i t s would a g a i n be the amount o f c o m p e n s a t i o n r e q u i r e d t o i n d u c e c u r r e n t b e n e f i c i a r i e s t o w i l l i n g l y f o r e g o t h e i r s u b j e c t i v e l y p e r c e i v e d uses o f t h e a r e a . In many c a s e s i n v o l v i n g non-market goods, however, t h e r a t i o n a l e f o r a u n ique a s s i g n m e n t o f e n t i t l e m e n t s i s n e i t h e r c l e a r l y d e f i n e d n o r c l e a r l y p e r t i n e n t t o t h e d i s p a r i t y between b u y i n g and s e l l i n g measures o f v a l u e . For example, i t i s l i k e l y t h a t many i n d i v i d u a l s t e n d t o assume t h a t a wide range o f e n v i r o n m e n t a l r e s o u r c e s a r e t h e i r s by v i r t u e o f i m p l i c i t r a t h e r t h a n e x p l i - c i t r i g h t s , which t h e y d e f i n e not i n a s t r i c t l y l e g a l sense but r a t h e r i n terms o f t h e w e l f a r e o r s a t i s f a c t i o n o b t a i n e d t h r o u g h t h e i r use. What . i s a t s t a k e f o r them i s t h e r e f o r e not a l e g a l l y r e c o g n i z e d r i g h t but r a t h e r t h e i r p e r c e p - t i o n o f a p o t e n t i a l w e l f a r e l o s s . Even though I have no l e g a l g u a r a n t e e t o the maintenance o f an un- h i n d e r e d view, f o r example, I may s t i l l c o n s i d e r i t w i t h i n my r i g h t s t o 26 p r o t e s t when a n e i g h b o u r ' s t r e e s grow s u f f i c i e n t l y h i g h t h a t i t becomes ob- s t r u c t e d o r when a h i g h - r i s e apartment i s b u i l t between my l i v i n g r o o m window and t h e s e a . F u r t h e r m o r e , t h i s c o n c e p t i o n o f p e r s o n a l r i g h t s would appear t o be c o n s i s t e n t w i t h both t h e economic p r i n c i p l e o f consumer s o v e r e i g n t y and t h e l e g a l d e f i n i t i o n o f e n t i t l e m e n t s : both r e c o g n i z e the r i g h t o f the i n d i v i d u a l t o a s s e r t h i s o r her p r i v a t e , s u b j e c t i v e v a l u a t i o n o f t h e r e s o u r c e use i n q u e s t i o n and g u a r a n t e e t h a t a v e r y h i g h l e v e l o f compensation w i l l be demanded b e f o r e one w i l l i n g l y g i v e s up one's r i g h t t o p r e v e n t an a c t i o n c o n - s i d e r e d t o be o b j e c t i o n a b l e o r immoral (Kennedy, 1981). In t h e p a s t few y e a r s q u e s t i o n s o f i n d i v i d u a l r i g h t s a s s o c i a t e d w i t h e n v i r o n m e n t a l a m e n i t i e s have begun to i n t r u d e i n t o s e v e r a l a r e a s p r e v i o u s l y assumed t o be t h e s o l e p r o v i n c e o f governments. As a r e s u l t , once i n d i v i d u a l s become aware t h a t t h e h a b i t u a l c o n d i t i o n o f a r e s o u r c e o r e n v i r o n m e n t a l a m e n i t y r e g a r d e d as i n some way " t h e i r s " i s t h r e a t e n e d w i t h s i g n i f i c a n t a l t e r a t i o n , a s p e c t s o f t h e i r p r e f e r e n c e s which have p r e v i o u s l y been l a t e n t and, f o r a l l i n t e n t s and p u r p o s e s , n o n - e x i s t e n t may s u d d e n l y become w e l l - d e f i n e d . F u r t h e r m o r e , an i n d i v i d u a l ' s s u b j e c t i v e d e f i n i t i o n o f h i s o r her r i g h t s may be s u b s t a n t i a l l y d i f f e r e n t from t h e a s s i g n m e n t a c o u r t would c o n s i d e r o r t h e a s p e c t s o f w e l f a r e change t h a t a r e n o r m a l l y measured by e c o n o m i s t s . Two examples may h e l p t o c l a r i f y t h i s p o i n t . F i r s t , i f i n d i v i d u a l s a r e g i v e n an o p p o r t u n i t y t o c o n t r i b u t e t o p u b l i c p o l i c y r e g a r d i n g w i l d e r n e s s p r e s e r v a t i o n , t h e y may w e l l d e c i d e — i n a d e c i s i o n t h a t c o u l d have l i t t l e t o do w i t h t h e i r own c u r r e n t p r e f e r e n c e s — t h a t t h e y must be r i c h l y compensated f o r t a k i n g on the r e s p o n s i b i l i t y o f d e c i d i n g on b e h a l f o f a l l f u t u r e g e n e r a - t i o n s whether o r n o t a p a r t i c u l a r w i l d e r n e s s e n v i r o n m e n t o r animal s p e c i e s w i l l c o n t i n u e t o e x i s t . The r e s u l t s o f an e x p e r i m e n t d e s i g n e d t o t e s t t h e s i g n i f i c a n c e o f a s i m i l a r " r e s p o n s i b i l i t y c o s t " component o f p e r c e i v e d v a l u e s 27 w i l l be p r e s e n t e d i n C h a p t e r VI. S e c o n d l y , a d e c i s i o n based on c u r r e n t w e l - f a r e p o s i t i o n s i m p l i e s t h a t whether o r not a p e r s o n has a l e g a l r i g h t t o p r e v e n t something b e i n g done t o t h e m s e l v e s ( o r t o t h e i r e n v i r o n m e n t ) s h o u l d d e t e r m i n e t h e q u e s t i o n o f whether t h e i r w i l l i n g n e s s t o pay o r compensation demanded s h o u l d be employed as a measure o f v a l u e . Yet t h i s a p p r o a c h en- co u r a g e s t h o s e i n t e r e s t s which a r e not g r a n t e d l e g a l r e c o g n i t i o n — a l t r u i s m , s p i r i t u a l v a l u e s , b e q u e s t m o t i v a t i o n s and e m o t i o n a l s t a t e s such as d i g n i t y o r t r a n q u i l i t y - - t o be o m i t t e d from t he d e c i s i o n c a l c u l u s . Both examples argue t h a t c r i t e r i a based on l e g a l e n t i t l e m e n t s may be c o n c e p t u a l l y u n a b l e t o a l i g n w i t h c o n s i d e r a t i o n s o f i n d i v i d u a l w e l f a r e ; measurement o f the o b j e c t i v e change i n s t a t u s o f a p r o p e r t y r i g h t w i l l t h e r e f o r e f a i l t o c o i n c i d e w i t h t h e p e r - c e i v e d change i n s t a t u s o f an i n d i v i d u a l ' s w e l f a r e . The p o i n t a t i s s u e here i s not o n l y t h e p o s s i b l e i n d e t e r m i n a n c y o r i r r e l e v a n c e o f p r e s e n t e n t i t l e m e n t s but t h e p o s s i b l e c o n f l i c t between the a l l o c a t i o n o f r i g h t s under t he s t a t u s quo and t h e i r a l l o c a t i o n under a c o s t - b e n e f i t framework o f s o c i a l w e l f a r e m a x i m i z a t i o n . Whether the w i n n e r s c o u l d compensate the l o s e r s has as much t o do w i t h what measures and whose o p i n i o n s a r e used t o e s t a b l i s h t h e magnitude o f the v a l u e s a t i s s u e as i t does w i t h t h e i d e n t i f i c a t i o n o f w i n n i n g and l o s i n g p a r t i e s , p a r t i c u l a r l y i n s o f a r as the winn e r s from a change o f s t a t u s may a l s o be t h o s e who see t h e m s e l v e s as l o s e r s i f no. change i s made. Moreover, t he b e s t t h a t any a n a l y s i s based on c u r r e n t e n t i t l e m e n t s c o u l d hope t o a c h i e v e would be an a c c u r a t e d e p i c t i o n o f some o f t h e v a l u e s which t h e community h o l d s a t one p o i n t i n t i m e . As T r i b e (1973) and o t h e r s have emphasized, t he a n a l y s i s c o u l d n e v e r a s s i s t a community's r e s i d e n t s i n t h i n k i n g a b o u t what t h e i r v a l u e s s h o u l d be, d e s p i t e t h e f a c t t h a t a d d r e s s i n g t h i s i s s u e ( f o r example, t h r o u g h t h e e s t a b l i s h m e n t o f i n a l i e n a b l e e n t i t l e m e n t s ) m i ght r e s u l t i n a s u b s t a n t i a l i n c r e a s e i n n e t s o c i a l w e l f a r e . 28 B e f o r e t h e s e i s s u e s a r e s e r i o u s l y c o n s i d e r e d by e i t h e r t h e economics o r l e g a l p r o f e s s i o n s , answers t o two b a s i c q u e s t i o n s r e g a r d i n g d i f f e r e n c e s i n payment and compensation p r i c e s must be more c l e a r l y e s t a b l i s h e d . F i r s t , a r e d i f f e r e n c e s i n t h e two measures r e a l i n the sense t h a t t h e y r e f l e c t s i g n i f i - c a n t l y d i f f e r e n t p e r c e p t i o n s o f t h e v a l u e o f some good r a t h e r than m e r e l y t e c h n i c a l a r t i f a c t s o f accompanying changes i n income o r b i a s e d measurement p r o c e d u r e s ? Second, i f n e i t h e r income n o r r e s p o n s e e f f e c t s l i e b e h i n d t he v a r i a t i o n , can c o n t r i b u t i n g f a c t o r s be s u f f i c i e n t l y c l e a r l y d i s t i n g u i s h e d so as t o f a c i l i t a t e t h e p r e d i c t i o n o f changes i n v a l u e t h a t would accompany a g i v e n p o t e n t i a l change i n s t a t u s ? P a r t i a l answers t o both q u e s t i o n s have a l r e a d y been s u g g e s t e d , and a d d i t i o n a l e x p e r i m e n t a l e v i d e n c e w i l l be p r e s e n t e d i n t h e f o l l o w i n g c h a p t e r s . 29 CHAPTER I I I SURVEY MEASURES.OF NON-MARKET ENVIRONMENTAL VALUES E m p i r i c a l s t u d i e s o f t h e economic v a l u e o f non-market e n v i r o n m e n t a l p r e f e r e n c e s a r e few i n number: i n t e r e s t i n the a r e a i s f a i r l y new, t h e t a s k i s d i f f i c u l t , and r e s u l t s a r e c a r e f u l l y s c r u t i n i z e d by a s k e p t i c a l p r o f e s - s i o n a l and p o l i t i c a l a u d i e n c e . Two p r i n c i p a l r e s e a r c h t e c h n i q u e s have been employed t o e s t i m a t e t h e n e t economic b e n e f i t s a s s o c i a t e d w i t h m a i n t a i n i n g o r i m p r o v i n g p r e s e n t e n v i r o n m e n t a l c o n d i t i o n s i n the f a c e o f a pro p o s e d development o r o t h e r s o u r c e o f e n v i r o n m e n t a l change. A f i r s t a p p r o a c h u t i l i z e s o b s e r v e d changes i n the p r i c e s o f m a r k e t - v a l u e d commodities and i s e x e m p l i f i e d by h e d o n i c p r i c i n g s t u d i e s o f such d i v e r s e goods and bads as a i r p o l l u t i o n , c l i m a t i c v a r i a t i o n and n o i s e l e v e l s . An a l t e r n a t i v e approach u t i l i z e s s u r v e y r e s e a r c h t e c h n i q u e s and asks i n d i v i d u a l s t o d i r e c t l y s t a t e t h e v a l u e t h e y p l a c e on a p a r t i c u l a r p u b l i c good o r a c t i v i t y . S i n c e h e d o n i c measures do not r e l y on d i r e c t e x p r e s s i o n s o f p r e f e r e n c e and ca n n o t r e v e a l d i f f e r e n c e s i n payment and compe n s a t i o n p r i c e s , I w i l l o n l y r e v i e w s t u d i e s which d e v e l o p s u r v e y measures o f v a l u e f o r non-market goods. Three d i f f e r e n t t y p e s o f s u r v e y methods have been used t o e s t i m a t e t h e economic v a l u e o f non-market goods. A b i d d i n g game o r a u c t i o n a p p r o a c h p o s i t s an i n i t i a l v a l u e which i s then v a r i e d by s p e c i f i e d amounts u n t i l t h e p r i c e c h a r g e d i s c o n s i d e r e d t o be e x c e s s i v e o r t h e payment o f f e r e d i s deemed i n s u f f i c i e n t . The c l o s e d - e n d e d o r a l l - o r - n o n e approach asks s u b j e c t s t o re s p o n d a f f i r m a t i v e l y o r n e g a t i v e l y t o a pro p o s e d monetary payment, w i t h t h e l e v e l v a r i e d a c r o s s r e s p o n d e n t s . An open-ended a p p r o a c h asks p a r t i c i p a n t s 30 t o s t a t e t h e maximum (minimum) amount t h e y a r e w i l l i n g t o pay ( w i l l i n g t o a c c e p t ) t o p u r c h a s e o r r e t a i n ( f o r e g o ) a good o r a c t i v i t y . .The f i e l d i s dominated by a s e r i e s o f f o u r a r t i c l e s p u b l i s h e d i n the J o u r n a l o f E n v i r o n m e n t a l Economics and Management o v e r t h e p a s t seven y e a r s . A l t h o u g h a number o f d i f f e r e n t r e s e a r c h e r s have been i n v o l v e d , each s t u d y makes use o f an i t e r a t i v e b i d d i n g s u r v e y t e c h n i q u e and s u b j e c t s ' o n - s i t e r e s p o n s e s t o p h o t o g r a p h i c i n f o r m a t i o n t o examine the economic b e n e f i t ( c o s t ) o f p o t e n t i a l improvements ( r e d u c t i o n s ) i n v i s i b i l i t y . T h i s i s a c c o m p l i s h e d by comparing c u r r e n t v i s i b i l i t y l e v e l s t o one o r more p o s s i b l e f u t u r e s i t u a t i o n s which c o u l d r e s u l t from i n c r e a s e d e n e r g y development i n t h e r e g i o n . S u b j e c t s a r e asked e i t h e r t h e i r w i l l i n g n e s s t o pay t o improve a i r q u a l i t y l e v e l s o r t h e i r w i l l i n g n e s s t o a c c e p t c o m p e n s a t i o n i n r e t u r n f o r l o w e r s t a n d a r d s . As d i s c u s s e d i n C h a p t e r I I , t h e consumer (whether b u y i n g o r s e l l i n g ) i s g e n e r a l l y c o n s t r a i n e d by t h e q u a n t i t y o f t h e good which i s p u b l i c l y s u p p l i e d and i s not f r e e t o p u r c h a s e any d e s i r e d q u a n t i t y . As a r e s u l t , measures o f e q u i v a l e n t and compensating s u r p l u s ( r a t h e r t h a n v a r i a - t i o n ) have u s u a l l y been d e r i v e d . The f i r s t o f t h e s e s t u d i e s , by R a n d a l l , Ives and Eastman (1974), e s t i m a t e s t h e b e n e f i t o f r e d u c i n g t h e a e s t h e t i c e n v i r o n m e n t a l damage a s s o c i a t e d w i t h o p e r a t i o n o f t h e Four C o r n e r s power p l a n t i n New M e x i c o . The t y p e o f b i d d i n g game which was employed asked i n t e r v i e w s u b j e c t s i f t h e y would be w i l l i n g t o pay a s p e c i f i e d d o l l a r amount t o improve the q u a l i t y o f t h e v i s u a l e n v i r o n m e n t . P o t e n t i a l a i r q u a l i t y and o t h e r a e s t h e t i c l o s s e s were v e r b a l l y and v i s u a l l y d e s c r i b e d and an a t t e m p t was made t o c r e a t e h y p o t h e t i c a l market c o n d i t i o n s which were e a s i l y u n d e r s t a n d a b l e ( f o r example, u t i l i z e d a f a m i l i a r method o f payment) and b e l i e v a b l e ( i n an i n s t i t u t i o n a l o r p o l i c y s e n s e ) . T h i s h y p o t h e t i c a l payment was t h e n i n c r e a s e d o r d e c r e a s e d 31 by i d e n t i c a l amounts i n a s e r i e s o f r e p e t i t i v e v e r b a l q u e s t i o n s and t h e h i g h - e s t p o s i t i v e r e s p o n s e r e c o r d e d by t h e i n t e r v i e w e r . R e s u l t s o f a second s t u d y by B r o o k s h i r e , Ives and S h u l t z e ( 1 9 7 6 ) , which a g a i n used a b i d d i n g game ap p r o a c h t o e s t i m a t e p o t e n t i a l a e s t h e t i c damages a s s o c i a t e d w i t h c o n s t r u c t i o n o f a power p l a n t , were p u b l i s h e d i n 1976. A l t h o u g h minor d i f f e r e n c e s — r e l a t e d t o the p r e f e r r e d payment v e h i c l e ( i n t h i s c a s e , an e n t r a n c e f e e r a t h e r than a s a l e s t a x i n c r e a s e ) , c h a r a c t e r i s t i c s o f the sample p o p u l a t i o n , and t h e scope o f impacts c o n s i d e r e d — w e r e p r e s e n t , both s u r v e y p r o c e d u r e s and the magnitude o f mean r e s p o n s e s were s i m i l a r t o t h o s e o f t h e 1974 s t u d y . On the b a s i s o f t h i s c o r r e s p o n d e n c e , t h e a u t h o r s con- c l u d e d t h a t t h e y had s u c c e s s f u l l y a c h i e v e d " c o n f i r m a t i o n o f b i d d i n g games as a u s e f u l and c o n s i s t e n t t o o l f o r e l i c i t i n g consumer p r e f e r e n c e s . " (p. 388). The 1976 s t u d y gave e x p l i c i t a t t e n t i o n t o a number o f problems which t h e a u t h o r s f e l t c o u l d a r i s e i n the a p p l i c a t i o n o f b i d d i n g games. Of p a r t i - c u l a r c o n c e r n were problems o f s t r a t e g i c b i a s ( i n which i n d i v i d u a l s e x a g g e r a t e t h e i r t r u e f e e l i n g s i n o r d e r t o i n f l u e n c e c u m u l a t i v e s u r v e y r e s u l t s ) , t he r e l a t i o n s h i p between e q u i v a l e n t v a r i a t i o n o r s u r p l u s (EV, ES) and compensating v a r i a t i o n o r s u r p l u s (CV, CS) measures o f w e l f a r e change, and the t r a n s l a t i o n o f i n d i v i d u a l t o a g g r e g a t e s o c i a l b i d s . An a t t e m p t was made to f i r s t d i s c u s s t h e o r e t i c a l a s p e c t s o f each o f t h e s e i s s u e s and t o then e v a l u a t e t h e i r e m p i r i c a l s i g n i f i c a n c e on t h e b a s i s o f s u r v e y r e s p o n s e s . Both t h e 1974 and 1976 s t u d i e s r e p r e s e n t e a r l y a t t e m p t s a t the r e f i n e m e n t and e x t e n s i o n o f t e c h n i q u e s d e s i g n e d t o e l i c i t i n d i v i d u a l p r e f e r - ences f o r e n v i r o n m e n t a l q u a l i t y . * While t h e i r c o n t r i b u t i o n i s beyond F o l l o w i n g the l e a d , f o r example, o f R.K. D a v i s ' e a r l i e r s u r v e y s o f r e c r e a t i o n i s t s i n Maine (1963) and P. Bohm's s t u d i e s o f Swedish s u b j e c t ' s w i l l i n g n e s s t o pay t o view a v i d e o t a p e d TV program (1971). 32 d i s p u t e , h i n d s i g h t shows a number o f q u e s t i o n a b l e c o n c e p t u a l and e m p i r i c a l a s s e r t i o n s . Three major i s s u e s r e q u i r e f u r t h e r d i s c u s s i o n b e f o r e t u r n i n g t o t h e s u b s e q u e n t a r t i c l e s i n the s e r i e s . F i r s t , t he b a s i c q u e s t i o n asked o f p a r t i c i p a n t s i n t h e two s t u d i e s i s f u n d a m e n t a l l y d i f f e r e n t . A l t h o u g h b o t h a s k e d r e s p o n d e n t s t o compare t h r e e c o n d i t i o n s o f t h e v i s u a l e n v i r o n m e n t , t h e 1974 s t u d y used t h e h i g h e s t l e v e l o f damage as i t s s t a r t i n g p o i n t and a s k e d r e s p o n d e n t s t o s t a t e t h e maximum amount t h e y would be w i l l i n g t o pay t o improve the a e s t h e t i c e n v i r o n - ment. In t h e 1976 s t u d y p a r t i c i p a n t s began i n t h e most p r i s t i n e s i t u a t i o n and were as k e d i f t h e y would be w i l l i n g t o pay t o p r e v e n t d e t e r i o r a t i o n o f the v i s u a l e n v i r o n m e n t . Under t h e framework e s t a b l i s h e d by p r o s p e c t t h e o r y , t h e s e two f o r m u l a t i o n s o f t h e payment q u e s t i o n s t r e s s e i t h e r l o s s e s o r g a i n s and t h e r e f o r e c o u l d y i e l d s u b s t a n t i a l l y d i f f e r e n t r e s p o n s e s : the p o s s i b i l i t y w i l l be t e s t e d i n C h a p t e r V I . Second, i t a p p e a r s t h a t the s i m i l a r i t y o f n u m e r i c a l r e s u l t s o b t a i n e d i n t h e 1974 and 1976 s t u d i e s l e d t o a f a l s e s ense o f s e c u r i t y i n t h e a c c u r a c y o f r e s p o n s e s t o a b i d d i n g game p r o c e d u r e . With t h e 1976 s t u d y i n many ways s i m p l y a r e p l i c a t i o n o f i t s p r e d e c e s s o r , t h e s t r o n g p o s s i b i l i t y e x i s t s t h a t both e f f o r t s were l i a b l e t o i d e n t i c a l e r r o r s . Y e t no systema- t i c c o m parison o f c o n t r o l ( b i d d i n g ) w i t h o t h e r ( c l o s e d - o r open-ended) s u r v e y a p p r o a c h e s was u n d e r t a k e n . Two t y p e s o f p o t e n t i a l e r r o r s , a s s o c i a t e d w i t h t h e i n t r o d u c t i o n o f a s t a r t i n g p o i n t b i a s and t h e h y p o t h e t i c a l n a t u r e o f t h e q u e s t i o n s a s k e d , were b r i e f l y n o t e d ; however, o t h e r t y p e s o f b i a s — a s s o c i a t e d w i t h t h e s p e c i f i c w o r d i n g o f s u r v e y q u e s t i o n s , f r u s t r a t i o n w i t h t h e m u l t i p l e b i d d i n g p r o c e d u r e i t s e l f ("so he d o e s n ' t b e l i e v e me..."), t h e use o f p h o t o g r a p h i c d a t a o r the form o f i n t e r v i e w p r o c e d u r e s — w e r e n o t d i s c u s s e d . And b a s i c t o both s t u d i e s i s t h e i m p l i c i t a s s u m p t i o n t h a t p e o p l e n o t o n l y 33 hold quite d e f i n i t e values regarding visual q u a l i t i e s of the environment but can overcome the structural l i m i t a t i o n s of the particular survey format which i s employed to accurately express t h e i r preferences in monetary terms. Third, the three problem areas raised in the second a r t i c l e were addressed much less vigorously, and c e r t a i n l y less on the basis of actual survey responses, than indicated by the authors. Three discrepancies are b r i e f l y noted: 1. The test for strategic bias associated gaming with the presence of low (zero) or extremely high (undefined) bids r e l a t i v e to the sample mean, which was i t s e l f assumed to have magically escaped any biasing i n f l u - ence. While the test i s i n t u i t i v e l y appealing, the authors f a i l e d to establish any firm c r i t e r i a f o r strategic behavior beyond (a) t h e i r largely subjective evaluation of the r e l a t i v e (to what?) flatness of the d i s t r i b u - t i o n of responses, and (b) t h e i r unsurprising f a i l u r e to i d e n t i f y many dishonest bidders who were s u f f i c i e n t l y s k i l l e d i n t u i t i v e s t a t i s t i c i a n s to quickly calculate the amount that t h e i r bid should deviate from the mean response so as to successfully affect the survey average. 2. Measures of compensating surplus were not d i r e c t l y obtained from survey respondents but were instead derived from ES responses using a conventional deductive u t i l i t y formulation. Surprisingly, the authors state that the approach was selected not on the basis of i t s descriptive c a p a b i l i t y but rather f o r i t s s t a t i s t i c a l s e l f - j u s t i f i c a t i o n and because i t provided a convenient interpretive context. Since the selected functional forms assume that the two measures of consumer's surplus are identical in In this l i g h t , the report that the one strategic bidder was an economics professor i s more a source of concern illuminating inappropriate test procedures than i t i s a source of comic r e l i e f . 34 t h e i r arguments and i g n o r e a l a r g e number o f p o s s i b l e s o u r c e s o f v a r i a t i o n , t e s t r e s u l t s showing ES and CS d i f f e r e n c e s o f l e s s t h a n one p e r c e n t a r e n e i t h e r s u r p r i s i n g n o r p a r t i c u l a r l y i n f o r m a t i v e . 3. The s u c c e s s f u l a g g r e g a t i o n from i n d i v i d u a l t o s o c i a l b i d s i s s a i d t o r e q u i r e t h a t both income e f f e c t s and t h e p e r c e i v e d change i n e n v i r o n - mental q u a l i t y a r e r e l a t i v e l y s m a l l . Y e t no d i r e c t s u r v e y e v i d e n c e i s o b t a i n e d f o r t h e second i s s u e , w h i l e t h e f i r s t i s assumed t o be t r i v i a l f o r the range o f v a l u e s under c o n s i d e r a t i o n . S e v e r a l o t h e r q u e s t i o n s — w e r e r e s p o n d e n t s s t a t i n g t h e i r i n d i v i d u a l p r e f e r e n c e s o r t h o s e o f the h o u s e h o l d ? ; why s h o u l d i n d i v i d u a l r e s p o n s e s n e c e s s a r i l y be a d d i t i v e l y summed?--are a l s o p o t e n t i a l l y i m p o r t a n t and s h o u l d be a d d r e s s e d b e f o r e an a g g r e g a t i o n p r o c e d u r e can be c o n f i d e n t l y d e f e n d e d . S e v e r a l o f t h e s e c o n c e r n s a r e d i s c u s s e d i n the t h i r d and most com- p r e h e n s i v e a r t i c l e o f t h e s e r i e s , p u b l i s h e d i n 1980 by Rowe, d'Arge and 3 B r o o k s h i r e . The b a s i c s u r v e y i n s t r u m e n t i s s i m i l a r t o t h a t used i n the 1976 s t u d y , w i t h r e s p o n d e n t s asked t o s t a t e t h e i r w i l l i n g n e s s t o pay t o remain i n t h e h i g h e s t o f t h r e e c o n t i n g e n t v i s i b i l i t y s i t u a t i o n s . In t h i s c a s e , however, a second s e t o f s u r v e y p a r t i c i p a n t s was asked "to s t a t e t h e i r w i l l i n g n e s s t o a c c e p t ( h y p o t h e t i c a l ) c o m p e n s a t i o n i n r e t u r n ' f o r moving t o a l o w e r q u a l i t y e n v i r o n m e n t a l s t a t u s . A d i r e c t c o mparison o f ES w i t h CS measures o f consumer's s u r p l u s was t h e r e f o r e p o s s i b l e , as has a l r e a d y been d i s c u s s e d i n C h a p t e r I I . In a d d i t i o n , t e s t s f o r the i n f l u e n c e o f s t r a t e g i c b i a s , s o - c a l l e d " i n f o r m a t i o n b i a s " (which c o v e r s an i l l - d e f i n e d h o s t o f f a c t o r s t h a t c o u l d p o t e n t i a l l y be i n t r o d u c e d by the s u r v e y d e s i g n , i n t e r - v i e w e r o r s u r v e y r e s p o n d e n t ) , payment v e h i c l e b i a s and h y p o t h e t i c a l b i a s 3 The a r t i c l e uses s u r v e y d a t a p r e v i o u s l y c o l l e c t e d f o r an unpub-l i s h e d s t u d y by Blank e t al_. ( 1 9 7 8 ) , p r e p a r e d f o r the E l e c t r i c Power Research I n s t i t u t e . 35 ( a r i s i n g f r o m t h e f a c t t h a t t h e i n d i v i d u a l i s c o n f r o n t e d w i t h a c o n t i n g e n t r a t h e r than a c t u a l s i t u a t i o n ) a r e i n c l u d e d . S t r a t e g i c b i a s was t e s t e d by a n a l y z i n g whether p a r t i c i p a n t s c h a r a c - t e r i z e d as e n v i r o n m e n t a l i s t s ( o r d e v e l o p e r s ) i n c r e a s e d ( d e c r e a s e d ) t h e i r s t a t e d w i l l i n g n e s s t o pay a f t e r b e i n g g i v e n i n f o r m a t i o n r e g a r d i n g a hypo- t h e t i c a l mean b i d o r a f t e r b e i n g t o l d t h e i r b i d was i n s u f f i c i e n t t o m a i n t a i n p r e s e n t a i r q u a l i t y s t a n d a r d s . S i n c e most r e s p o n d e n t s d i d not s i g n i f i c a n t l y a l t e r t h e i r b i d s , t h e a u t h o r s c o n c l u d e d t h a t s t r a t e g i c b i a s g e n e r a l l y has a n e g l i g i b l e e f f e c t . T h i s r e s u l t i s n o t s u r p r i s i n g , i n p a r t s i n c e b e h a v i o r such as t h a t t r a d i t i o n a l l y known t o c h a r a c t e r i z e t h e f r e e r i d e r ( f o r which some e m p i r i c a l e v i d e n c e was o b t a i n e d ) would encourage a b i d c l o s e r t o , r a t h e r than f a r t h e r away from, t he supposed mean b i d o f t h e sample. However, s e v e r a l a s p e c t s o f t h e t e s t p r o c e d u r e f a i l t o i n s p i r e c o n f i d e n c e . F i r s t , t h e background s t u d y by Blank e t al_. (1978) r e p o r t s t h a t f u l l y o n e - t h i r d o f r e s p o n d e n t s d i d choose t o r e v i s e t h e i r w i l l i n g n e s s t o pay b i d when c o n f r o n t e d w i t h t h e p o s s i b i l i t y t h a t i t was i n s u f f i c i e n t . T h i s may s i m p l y be a n a t u r a l r e s p o n s e t o new i n f o r m a t i o n , o r i t may be i n d i c a t i v e o f s t r a t e g i c (downward) b i a s i n i n i t i a l b i d s . S i m i l a r l y , the t w o - t h i r d ' s who s t u c k w i t h t h e i r s t a t e d amounts may have s t r a t e g i c a l l y b i a s e d t h e i r i n i t i a l b i d s and t h e r e f o r e n o t r e q u i r e d r e v i s i o n . Second, p a r t i c i p a n t s were t o l d t h a t t h e i n f o r m a t i o n g i v e n them on mean b i d s had been o b t a i n e d i n o t h e r s t u d i e s ( r a t h e r t h a n , f o r example, e a r l i e r t e s t s o f t h e p r e s e n t s t u d y ) , which might d e c r e a s e i t s p e r c e i v e d r e l e v a n c e and i n f l u e n c e . T h i r d , t h e t e s t seems t o p r e s e n t a r e a d i l y t r a n s p a r e n t game t h a t c o u l d d i s c o u r a g e a r e s p o n - dent f r o m c h a n g i n g h i s o r her b i d ("I'm n o t as dumb as t h e y t h i n k ! " ) w i t h o u t t e l l i n g us a n y t h i n g about t h e a c c u r a c y o f an i n i t i a l r e s p o n s e . F i n a l l y , no e v i d e n c e i s p r e s e n t e d t o s u g g e s t t h a t t h o s e i n d i v i d u a l s s o p h i s t i c a t e d 36 enough (and s u f f i c i e n t l y h i g h l y m o t i v a t e d ) t o g i v e s t r a t e g i c a l l y b i a s e d b i d s would n e c e s s a r i l y be n a i v e enough t o i m m e d i a t e l y t h e r e a f t e r c h a r a c t e r - 4 i z e t h e m s e l v e s as b e i n g p r o - c o n s e r v a t i o n o r pro-development. The i m p l i c a t i o n s ' o f t h e two t y p e s o f s u r v e y i n s t r u m e n t ( o r i n f o r - m a tion) b i a s e s , r e l a t i n g t o t h e i n f l u e n c e o f (a) d i f f e r e n t s t a r t i n g b i d s and (b) p r i o r i n f o r m a t i o n c o n c e r n i n g t h e p r e f e r e n c e s o f o t h e r r e s p o n d e n t s , were a l s o t e s t e d w i t h r e f e r e n c e t o both t h e ES and CS b i d c u r v e s . The p o s s i b i l i t y o f s t a r t i n g p o i n t impacts had been noted but was not i n v e s t i - g a t e d i n t h e two e a r l i e r b i d d i n g game s t u d i e s ; both R a n d a l l e t al_. and B r o o k s h i r e e t al_. used $1.00 s t a r t i n g b i d s , w i t h t h e 1974 s t u d y e m p l o y i n g 25<£ b i d d i n g i n c r e m e n t s and the 1976 s t u d y $1.00 i n c r e m e n t s . The 1980 s t u d y used s t a r t i n g b i d s o f $1.00, $5.00 and $10.00 and employed $1.00 b i d . 5 i n c r e m e n t s . The i n f l u e n c e o f s t a r t i n g p o i n t b i a s was found t o be h i g h l y s i g n i - f i c a n t f o r ES r e s p o n s e s , w i t h each i n c r e a s e o f $1.00 i n the s p e c i f i e d amount l e a d i n g t o an a v e r a g e i n c r e a s e o f o v e r $0.60 i n the subsequent b i d w i t h i n t h e $1.00 t o $10.00 range t h a t was examined. These r e s u l t s , a l o n g w i t h t h e r e s p e c t i v e mean b i d s , a r e shown below f o r each o f t h e f o u r l e v e l s o f en- g v i r o n m e n t a l q u a l i t y . I n f o r m a t i o n p r e s e n t e d on o t h e r (supposed) r e s p o n d e n t ' s low mean b i d s was a l s o i n f l u e n t i a l , w i t h t h o s e who r e c e i v e d t he i n f o r m a t i o n ^Measured i n terms o f t h e i r answer t o a s t a t e m e n t r e g a r d i n g p r e v i o u s c o n t r i b u t i o n s t o e n v i r o n m e n t a l c a u s e s , which may not p r o v i d e a r e l i a b l e i n d i c a t o r o f a p e r s o n ' s a t t i t u d e toward t h e en v i r o n m e n t o r toward t he p a r t i -c u l a r cause under c o n s i d e r a t i o n . 5 B l a n k e t al_. (1978:284) r e p o r t t h a t t h e i n t e r v i e w e r s "...used $1.00 i n c r e m e n t s but were a l l o w e d t o make a d j u s t m e n t s a c c o r d i n g t o t h e r e s p o n s e s r e c e i v e d . " However, no a d d i t i o n a l r e p o r t i n g on the i n f l u e n c e o f b i d i n c r e -ments i s p r o v i d e d . 6 F r o m Blank e t al_. ( 1 9 7 8 ) , T a b l e 7.12. 37 b i d d i n g (on a v e r a g e ) $1.70 per month l e s s t h a n t h e c o n t r o l group. S t a r t i n g B i d C o n d i t i o n s A B A C B C A D $ 1.00 2.40 4.08 2.27 4.19 $ 5 . 0 0 5.31 6.99 4.25 7.40 $10.00 8.23 10.43 4.40 10.97 Mean B i d s 4.75 6.54 3.53 6.85 CS b i d s were s u f f i c i e n t l y l a r g e so as t o mask the o b s e r v e d e f f e c t s o f s t a r t i n g p o i n t o r s u r v e y i n s t r u m e n t i n f l u e n c e s as d e m o n s t r a t e d by t e s t r e s u l t s . The p o s s i b i l i t y t h a t l a r g e r mean o r s t a r t i n g b i d s might have r e s u l t e d i n t e s t a b l e b i a s e s was n o t e d but not e m p i r i c a l l y i n v e s t i g a t e d . . On t h e b a s i s o f t h i s e v i d e n c e , Rowe, d'Arge and B r o o k s h i r e (1980:18) c o n c l u d e t h a t both s u g g e s t e d s t a r t i n g b i d s and t h e s t r u c t u r e o f t h e s u r v e y i n s t r u m e n t "may s e r i o u s l y d i s t o r t v a l u a t i o n s d e r i v e d from t h e i t e r a t i v e b i d d i n g t e c h n i q u e . " P o t e n t i a l changes aimed a t d e b i a s i n g t h e b i d d i n g p r o c e s s a r e weakly posed,^ and d e s p i t e the o p t i m i s t i c f i n d i n g t h a t comparisons w i t h o t h e r s t u d i e s " i n d i c a t e e s t i m a t e s o f [ES] s u r p l u s measures a r e w i t h i n 10% o f each o t h e r " t h e r e a d e r i s l e f t w i t h a d i s c o u r a g e d f e e l i n g t h a t the i n f l u e n c e o f t h e above mentioned problems i s p e r v a s i v e and t h a t perhaps e a r l i e r s t u d i e s a r e i n c l o s e agreement o n l y because t h e y a l s o r e f l e c t t h e same b i a s e s . F o r example, the background s t u d y by Blank e t aJL (1978) s u g g e s t s t h a t s t a r t i n g b i d s c o u l d e i t h e r be s e l e c t e d by t h e r e s p o n d e n t o r by the r e -s e a r c h e r t h r o u g h p r e - s a m p l i n g , but f a i l s t o p r e s e n t an accompanying r a t i o n a l e as t o why t h e s e p r o c e d u r e s might m i n i m i z e b i a s e s . S i m i l a r l y , i t s u g g e s t s t h a t no e x t r a n e o u s i n f o r m a t i o n s h o u l d be p r e s e n t e d w i t h o u t p r o v i d i n g c r i t e r i a t o h e l p t h e next r e s e a r c h e r d e c i d e what i s , and what i s n o t , n e c e s s a r y . o A s i m i l a r p o i n t was made i n the background s t u d y by Blank e t a l . (1978:288): " L o g i c a l l y t h i s s i m i l a r i t y [ o f r e s u l t s ] does n o t prove t h a t 38 What was needed was a new b u r s t o f c o n f i d e n c e , and t h i s was f u r n i s h e d by M. T h a y e r i n h i s 1981 s t u d y o f e n v i r o n m e n t a l p r e f e r e n c e s c o n d u c t e d i n New M exico's Jemez Mountain r e c r e a t i o n a r e a ( T h a y e r , 1981). The g e n e r a l a p p roach i s s i m i l a r t o t h a t o f t h e p r e c e d i n g s t u d i e s w i t h t h e f o l l o w i n g e x c e p t i o n s : (a) t h e h y p o t h e t i c a l development i s a geothermal power p l a n t , l a r g e r i n s c a l e but o t h e r w i s e s i m i l a r t o o t h e r s a l r e a d y d e v e l o p e d i n t h e r e g i o n ; (b) o n l y two s t a t e s o f the e n v i r o n m e n t a r e c o n s i d e r e d ; ( c ) the damages which accompany development c o u l d i n c l u d e t h e e m i s s i o n o f n o x i o u s gases and an i n c r e a s e d n o i s e l e v e l as w e l l as v i s u a l d e g r a d a t i o n o f t h e e n vironment. T h a y e r e x p l i c i t l y s t a t e s t h a t h i s o b j e c t i v e i s t o " a d d r e s s the t h r e e b i a s e s [ s t a r t i n g p o i n t , h y p o t h e t i c a l , and i n f o r m a t i o n ] which have undermined t h e g e n e r a l a c c e p t a n c e o f t h e c o n t i n g e n t v a l u a t i o n method." (p. 28). He d e v e l o p s a g e n e r a l model i n which consumers,, whose p r e f e r e n c e s a r e assumed t o be i d e n t i c a l , seek t o maximize t h e u t i l i t y d e r i v e d from a s p e c i f i e d o u t d o o r g r e c r e a t i o n a c t i v i t y and income l e v e l . T h i s model i s t h e n e x t e n d e d t o i n v e s t i g a t e each o f t h e t h r e e s o u r c e s o f p o t e n t i a l b i a s . The a n a l y s i s o f h y p o t h e t i c a l b i a s assumes t h a t t h e c o n t i n g e n t n a t u r e o f t h e b i d d i n g a p p r o a c h w i l l n o t i n f l u e n c e r e s p o n s e s i n any s p e c i f i c d i r e c - t i o n but c o u l d d e c r e a s e a p a r t i c i p a n t ' s i n c e n t i v e t o answer a c c u r a t e l y . ^ b i d d i n g games e l i c i t t r u e measures o f w i l l i n g n e s s t o pay. I t o n l y demon-s t r a t e s t h e . s i m i l a r i t y w i t h w hich r e s p o n d e n t s r e a c t t o t h e p r o c e s s . " How-e v e r , t h e r e p o r t then terms t h i s "a s o c i o l o g i c a l r a t h e r than an economic q u e s t i o n " and p r o c e e d s onwards, as i f t h e s h i f t i n g o f r e s p o n s i b i l i t y p r o v i d e d a v i n d i c a t i o n o f t u n n e l v i s i o n . g P a y i n g t o p r e s e r v e the e x i s t i n g n a t u r a l s e t t i n g i s e q u i v a l e n t i n u t i l i t y terms t o n o t p a y i n g t h e b i d and t h e r e b y a l l o w i n g development t o p r o c e e d , a f t e r which t h e number o r q u a l i t y o f r e c r e a t i o n a l v i s i t s - w o u l d be d i m i n i s h e d . ^ F r e e m a n (1978) s h a r e s t h i s c o n c e r n , a r g u i n g t h a t i n a h y p o t h e t i c a l framework an i n d i v i d u a l w i l l not have t o l i v e w i t h t h e consequences o f h i s r e s p o n s e and t h e r e f o r e i n c u r s no r e a l l o s s o f u t i l i t y f o r g i v i n g i n a c c u r a t e answers. He r a i s e s t h e a d d i t i o n a l c o n c e r n t h a t h y p o t h e t i c a l w i l l i n g n e s s t o 39 T h a y e r t h e r e f o r e e q u a t e s t h e h y p o t h e t i c a l n a t u r e o f the b i d d i n g game w i t h a p o s s i b l e random e r r o r i n s u r v e y r e s p o n s e s r a t h e r than w i t h the i n t r o d u c t i o n o f a s y s t e m a t i c b i a s . H i s t e s t o f h y p o t h e t i c a l b i a s , which i n v o l v e s e s t i m a - t i o n o f t h e a d d i t i o n a l t r a v e l c o s t s a s s o c i a t e d w i t h r e c r e a t i o n p l a n s a t a s u b s t i t u t e ( p o s t - d e v e l o p m e n t ) s i t e , c o u l d p r o v i d e an i n t e r n a l check on r e s p o n s e a c c u r a c y but i s no more c l o s e l y r e l a t e d t o a c t u a l r e s p o n d e n t b e h a v i o r . ^ T h a y e r ' s t e s t o f i n f o r m a t i o n b i a s e v a l u a t e s whether a s k i n g s u r v e y q u e s t i o n s which i n c l u d e a d e s c r i p t i o n o f a l t e r n a t i v e r e c r e a t i o n s i t e s might a l t e r a r e s p o n d e n t ' s p e r c e p t i o n o f t h e r e l a t i v e q u a l i t y o f the s t u d y s i t e . T h i s i s a v e r y s p e c i f i c example o f i n f o r m a t i o n b i a s , and a l t h o u g h i t l e a d s t o i n t u i t i v e l y a p p e a l i n g p r e d i c t i o n s — c o r r e c t i o n o f a m i s c o n c e p t i o n t h a t the next n e a r e s t s i t e was f a r t h e r away ( c l o s e r ) than i t r e a l l y i s s h o u l d b i a s b i d s downward (upward)--we l e a r n n o t h i n g about o t h e r i n f l u e n c e s o f t h e s u r v e y d e s i g n o r b i a s e s i n t r o d u c e d by t h e s p e c i f i c form o f the s u r v e y q u e s t i o n s . F u r t h e r m o r e , s i n c e 64 o f 65 r e s p o n d e n t s were from n e a r b y c i t i e s and a l l were r e c r e a t i o n i s t s , i t i s t o be e x p e c t e d t h a t most i n d i v i d u a l s would p o s s e s s a good g e n e r a l knowledge o f s u b s t i t u t e r e c r e a t i o n s i t e s i n the immediate a r e a . The p r i o r h y p o t h e s i s t h a t i n f o r m a t i o n b i a s i s n o t a s i g n i f i c a n t d e t e r m i n a n t o f b i d b e h a v i o r t h e r e f o r e s h o u l d be, and i s , c o n f i r m e d . T h a y e r ' s t e s t o f s t a r t i n g p o i n t b i a s assumes t h a t t h e r e s p o n d e n t i n pay q u e s t i o n s d e s i g n e d t o m i n i m i z e the i n f l u e n c e o f b i a s e s may s i m u l t a n e -o u s l y e l i m i n a t e an i n d i v i d u a l ' s i n c e n t i v e t o t a k e the time r e q u i r e d t o frame an a c c u r a t e r e s p o n s e . r e l a t e d s t u d y by B r o o k s h i r e , T h a y e r , S c h u l z e and d'Arge (1981) a t t e m p t s t o v a l i d a t e t h e i t e r a t i v e b i d d i n g s u r v e y p r o c e d u r e t h r o u g h c o m p a r i -son w i t h a s t a n d a r d h e d o n i c a n a l y s i s o f t h e e f f e c t o f a i r q u a l i t y on h o u s i n g v a l u e s i n S o u t h e r n C a l i f o r n i a . However, the s t u d y e v a l u a t e s p r e f e r e n c e s f o r a c o n v e n t i o n a l p r i v a t e l y owned market and t h e r e s u l t s a r e t h e r e f o r e n o t d i r e c t l y comparable t o an o u t d o o r r e c r e a t i o n o r o t h e r p u b l i c good c o n t e x t . 40 a b i d d i n g game f a c e s c o n f l i c t i n g d e s i r e s . On t h e one hand, we a r e t o l d t h a t he wants t o b i d h o n e s t l y and i n a c c o r d a n c e w i t h h i s t r u e p r e f e r e n c e s ( t h a t i s , s t r a t e g i c b e h a v i o r does n o t e x i s t ) . At t h e same t i m e , the r e s p o n d e n t wants t o m i n i m i z e the time s p e n t i n a n s w e r i n g s u r v e y q u e s t i o n s , which i s c o n s i s t e n t w i t h m i n i m i z i n g t h e number o f s t e p w i s e b i d s . W i t h i n T h a y e r ' s u t i l i t y m a x i m i z a t i o n framework t h e problem t h e r e f o r e becomes a s t r a i g h t f o r - ward attempt a t c o s t m i n i m i z a t i o n . Respondents were a s k e d i f t h e y would pay an e n t r a n c e f e e o f e i t h e r $1.00 o r $10.00 i n o r d e r t o p r e v e n t t h e o c c u r r e n c e o f e n v i r o n m e n t a l damage a s s o c i a t e d w i t h t h e p r o p o s e d geothermal development; the amount was t h e n i n c r e a s e d ( o r d e c r e a s e d ) by $1.00 a t a t i m e u n t i l a n e g a t i v e ( p o s i t i v e ) r e s p o n s e was o b t a i n e d . As T h a y e r n o t e s , t h e r e c r e a t i o n a l e x p e r i e n c e t o be v a l u e d was i n most c a s e s w e l l known from p r e v i o u s v i s i t s and w e l l d e f i n e d i n p h y s i c a l c h a r a c t e r i s t i c s ; s i m i l a r l y , t he payment v e h i c l e employed was both f a m i l i a r t o r e s p o n d e n t s and c l e a r l y conveyed t h e r e a l p o s s i b i l i t y o f e x c l u - s i o n f o r n o n - p a y i n g i n d i v i d u a l s . As s u g g e s t e d by both R a n d a l l e t al_. (1974) and Bohm (1973 ) , t h e s e f a c t o r s would be e x p e c t e d t o d e c r e a s e t h e i n f l u e n c e o f s t a r t i n g p o i n t (as w e l l as o t h e r ) b i a s e s . T h i s i s e x a c t l y what was f o u n d , w i t h no s i g n i f i c a n t d i f f e r e n c e s o b s e r v e d between av e r a g e b i d s s t a r t i n g a t $1.00 and a t $10.00; i n f a c t , t h e mean b i d p r o v e d t o be s l i g h t l y l o w e r w i t h a $10.00 s t a r t i n g p o i n t . The i n t e r p r e t a t i o n o f t h e s e r e s u l t s i s d i f f i c u l t : two c o n c e r n s w i l l be noted here and d i s c u s s e d i n more d e t a i l i n C h a p t e r VI. F i r s t , both $1.00 and $10.00 r e p r e s e n t r e l a t i v e l y low l e v e l s o f payment. I f the r e s p o n d e n t views t h e s t a r t i n g p o i n t as r e p r e s e n t i n g a s o c i a l l y d e s i r a b l e e s t i m a t e o f what w i l l i n g n e s s t o pay s h o u l d be, the d i f f e r e n c e ( f o r an a v e r a g e f a m i l y s i z e o f f o u r ) between a 25<£ and a $2.50 per p e r s o n v i s i t may w e l l prove i n s i g n i f i c a n t . 41 I f t h e s t a r t i n g p o i n t s were i n s t e a d $1.00 and $50.00, a s i g n i f i c a n t s t a r t i n g p o i n t b i a s might be i n t r o d u c e d . Second, i t i s not a t a l l c l e a r t h a t any r e l a t i o n n e c e s s a r i l y e x i s t s between r e s p o n d e n t s ' s t a t e d w i l l i n g n e s s t o pay an e n t r a n c e f e e and t h e v a l u e t h e y p l a c e on p r e s e r v a t i o n o f ( i n t h i s c a s e ) t h e Jemez Mountain r e c r e a t i o n a r e a . I n s t e a d , the s i m i l a r i t y o f b i d s w i t h $1.00 and $10.00 s t a r t i n g p o i n t s may s i m p l y r e f l e c t a common u n d e r s t a n d i n g o f how l a r g e e n t r a n c e f e e s commonly are.. T h a y e r ' s c l a i m t h a t v e h i c l e payment b i a s "can be c o u n t e r e d by u s i n g a d e v i c e which i s f a m i l i a r and r e q u i r e s r o u t i n e b e h a v i o r " (p. 27) may t h e r e f o r e be s u b s t a n t i a t e d o n l y a t the expense o f s a c r i f i c i n g t h e s u r v e y i n s t r u m e n t as a mechanism f o r e l i c i t i n g r e l e v a n t e x p r e s s i o n s o f v a l u e . In summary, t h e r e s u l t s r e p o r t e d i n T h a y e r ' s 1981 s t u d y a r e decep- t i v e l y f r a g i l e . He does p r e s e n t a d d i t i o n a l e v i d e n c e t h a t i f the payment mechanism i m p l i e s r o u t i n e b e h a v i o r , the c o n t i n g e n t s i t u a t i o n s a r e e a s i l y u n d e r s t a n d a b l e and the non-market commodity under c o n s i d e r a t i o n i s f a m i l i a r , t h e n a l t e r n a t i v e s t a r t i n g p o i n t s s h o u l d e x e r t a n e g l i g i b l e i n f l u e n c e on r e s p o n d e n t s ' b i d s . However, t h e s e c o n d i t i o n s a r e h i g h l y r e s t r i c t i v e . For more a b s t r a c t c o n t e x t s , w i t h l e s s f a m i l i a r modes o f payment o r w i t h novel development o p t i o n s , h i s r e s u l t s t e l l us l i t t l e about the c o n f i d e n c e t o be p l a c e d i n i t e r a t i v e b i d d i n g measures o f v a l u e o r what t o do i f s e r i o u s b i a s e s a r e p r e s e n t . The r e l a t i o n o f h y p o t h e t i c a l t o a c t u a l b e h a v i o r remains unad- d r e s s e d , and we s t i l l c a n n o t d i f f e r e n t i a t e between b i d s which might r e p r e s e n t a r e s p o n d e n t ' s v a l u a t i o n o f t h e non-market commodity under c o n s i d e r a t i o n and b i d s which might m e r e l y r e f l e c t the form o f the s e l e c t e d s u r v e y p r o c e d u r e s . And on t h e major q u e s t i o n o f the p r e s e n t i n q u i r y , the d i v e r g e n c e between e m p i r i c a l e s t i m a t e s o f e q u i v a l e n t and compensating s u r p l u s o r v a r i a t i o n , no new i n f o r m a t i o n has been g a i n e d . 42 D e s p i t e both t h e i r acknowledged and t h e i r i g n o r e d l i m i t a t i o n s , t h e s e f o u r a r t i c l e s have g r e a t l y enhanced t h e r e s p e c t a b i l i t y a c c o r d e d s u r v e y measures o f t h e v a l u e o f non-market e n v i r o n m e n t a l goods. They have a l s o p r o v i d e d a r e a d i l y a c c e s s i b l e model f o r a d d i t i o n a l s t u d i e s o f r e l a t e d r e - s o u r c e p o l i c y i s s u e s on the p a r t o f both government a g e n c i e s and p r i v a t e c o n s u l t a n t s . U t i l i t y companies and r e s e a r c h groups such as the E l e c t r i c Power R e s e a r c h I n s t i t u t e have been p a r t i c u l a r l y i n t e r e s t e d i n u s i n g s i m i l a r p r o c e d u r e s t o e s t i m a t e t h e b e n e f i t s and c o s t s a s s o c i a t e d w i t h t h e i n s t a l l a - 12 t i o n o f e m i s s i o n c o n t r o l s a t p l a n n e d power g e n e r a t i o n f a c i l i t i e s . One o t h e r a p p l i c a t i o n o f t h e b i d d i n g game p r o c e d u r e w i l l a l s o be d i s c u s s e d because i t a t t e m p t s t o e x t e n d t h e t e c h n i q u e t o d e r i v e e x p r e s s e d 13 p r e f e r e n c e measures o f non-user v a l u e s . T h i s s t u d y , c o n d u c t e d by Walsh e_t al_. ( 1 9 7 8 ) , e v a l u a t e d r e s i d e n t s ' w i l l i n g n e s s t o pay f o r improved water q u a l i t y i n the South P l a t t e R i v e r b a s i n o f C o l o r a d o . Photographs o f t h r e e d i f f e r e n t l e v e l s o f water q u a l i t y were employed t o d e r i v e e s t i m a t e s o f f o u r components o f v a l u e , a s s o c i a t e d w i t h u s e r ' s r e c r e a t i o n a l a c t i v i t i e s and t h r e e t y p e s o f a r g u a b l y s e p a r a b l e n o n - u s e r demands ( o p t i o n , e x i s t e n c e and,. b e q u e s t ) . The s t u d y a l s o compared two methods o f payment, w i t h an i n d i v i d - u a l asked t o s t a t e e i t h e r t h e maximum p e r c e n t a g e i n c r e a s e i n s a l e s t a x e s o r th e maximum monthly i n c r e a s e i n water b i l l payments which t h e h o u s e h o l d would a g r e e t o pay t o p r e s e r v e water q u a l i t y a t p r e s e n t l e v e l s . " L i"For example, a major s t u d y was r e c e n t l y completed by C h a r l e s R i v e r A s s o c i a t e s I n c . f o r t h e EPRI. E n t i t l e d " V i s i b i l i t y Impairment a t Mesa Verde N a t i o n a l Park: An A n a l y s i s o f B e n e f i t s and C o s t s o f C o n t r o l l i n g E m i s s i o n s i n th e Four C o r n e r s A r e a " (EPRI, December 1980), t h e r e p o r t d e v e l o p s e s t i m a t e s o f consumer's w i l l i n g n e s s t o pay f o r v a r i o u s l e v e l s o f a i r q u a l i t y on the b a s i s o f an o r d e r e d l o g i t model. Q u e s t i o n s o f b i a s and a l t e r n a t i v e consum-e r ' s s u r p l u s measures a r e no t e d but not e x p l o r e d . 13 The term r e f e r s t o demands which e x i s t f o r a l a r g e c l a s s o f goods t h a t a r e n o t d i r e c t l y "consumed" on s i t e by i n d i v i d u a l s . Such "non-user" 43 S e l e c t i o n o f t h e payment mechanism was found t o s i g n i f i c a n t l y i n f l u - 14 ence t h e r e s u l t i n g b i d s , and i n t e r e s t i n g r e s u l t s were o b t a i n e d r e g a r d i n g t h e r e l a t i o n s h i p between i n d i v i d u a l b i d s and a number o f s o c i o - e c o n o m i c v a r i a b l e s . However, t e s t s f o r the p r e s e n c e o f b i a s were not un d e r t a k e n and, w i t h t h e e x c e p t i o n o f a g e n e r a l c a v e a t r e g a r d i n g t h e h y p o t h e t i c a l n a t u r e o f th e q u e s t i o n s a s k e d , t h e p o s s i b l e i n f l u e n c e o f b i a s and o t h e r s o u r c e s o f e r r o r was n o t even d i s c u s s e d . T h i s absence o f c o n t e x t , e s p e c i a l l y i n l i g h t o f t h e r e l a t i v e l y n o vel and complex s u b j e c t m a t t e r , i m p l i e s an und e s e r v e d c o n f i d e n c e i n the a c c u r a c y o f s u r v e y r e s u l t s and t h e i r use i n the f o r m u l a t i o n o f p u b l i c p o l i c y . S t a r t i n g p o i n t b i a s would a p p e a r t o be a p a r t i c u l a r l y i m p o r t a n t c o n c e r n , s i n c e the mean b i d s which a r e r e p o r t e d f o r o p t i o n , e x i s - t e n c e and be q u e s t v a l u e s a r e a l l r e l a t i v e l y c l o s e t o t h e i n i t i a l amounts which were employed. O t h e r s t u d i e s o f non-market e n v i r o n m e n t a l goods have employed e i t h e r c l o s e d - e n d e d o r open-ended measures t o d e r i v e s u r v e y e s t i m a t e s o f economic v a l u e . The s u r v e y o f duck h u n t e r s by Hammack and Brown (1974) employed open-ended q u e s t i o n s t o d e t e r m i n e r e s p o n d e n t s ' maximum w i l l i n g n e s s t o pay o r minimum comp e n s a t i o n demanded t o p r e s e r v e a w e t l a n d h a b i t a t . A 1975 s u r v e y o f a n g l e r s i n n o r t h e r n B r i t i s h C o l u m b i a , c o n d u c t e d by Environment Canada ( S i n c l a i r , 1976), a l s o used open-ended q u e s t i o n s t o e s t i m a t e t h e v a l u e t o v a l u e s a r e f r e q u e n t l y a s s o c i a t e d w i t h b e n e f i t s c o n f e r r e d by the p r e s e r v a t i o n o f e n v i r o n m e n t s i n t h e i r n a t u r a l s t a t e , t h e c o n s e r v a t i o n o f endangered s p e c i e s , o r t h e p r o t e c t i o n o f i n d i g e n o u s c u l t u r e s t h r e a t e n e d by the s p r e a d o f modern s o c i e t y . 14 Average w i l l i n g n e s s t o pay v a l u e s f o r improved water q u a l i t y on t h e b a s i s o f a s a l e s t a x measure were a p p r o x i m a t e l y t h r e e t i m e s as g r e a t as v a l u e s o b t a i n e d on the b a s i s o f a pr o p o s e d i n c r e a s e i n consumers' water b i l l s . The i n t e r p r e t a t i o n o f t h i s d i f f e r e n c e i s c o m p l i c a t e d by the f a c t t h a t i t i s n o t c l e a r whether r e s p o n d e n t s would have viewed t h e s t a t e d t a x i n c r e a s e as a t o t a l ( t h a t i s , i n a d d i t i o n t o c u r r e n t t a x c o n t r i b u t i o n s ) o r i n c r e m e n t a l payment. 44 r e s i d e n t s o f p r e s e r v i n g t h e i r f a v o r i t e f r e s h w a t e r f i s h i n g s i t e . S t o l l e t al_. (1982) employed both open-ended and c l o s e d - e n d e d ques- t i o n s i n t h e i r s t u d y o f s u b j e c t s ' w i l l i n g n e s s t o pay f o r r e c r e a t i o n a l b o a t i n g p e r m i t s on f o u r E a s t Texas l a k e s . While t h e y r e p o r t e d t h a t r e s p o n s e s t o the two f o r m a t s a p p e a r t o be w i t h i n t h e same rang e , t h e i r f i n d i n g s remain p r e - l i m i n a r y p e n d i n g t h e r e s u l t s o f a d d i t i o n a l a n a l y s i s . S t o l l e t al_. a l s o r e p o r t t h a t a h i g h e r p r e c e n t a g e o f s u b j e c t s f i n d i t p o s s i b l e t o g i v e what seem t o be a c c u r a t e r e s p o n s e s t o the h y p o t h e t i c a l c l o s e d - e n d e d than t o the open-ended q u e s t i o n s . A w i d e l y - q u o t e d r e c e n t e x p e r i m e n t , by B i s h o p and H e b e r l e i n (1979), u t i l i z e d a c l o s e d - e n d e d approach t o e s t i m a t e the v a l u e o f goose h u n t i n g p e r m i t s i n W i s c o n s i n . P e r m i t s a r e o r d i n a r i l y i s s u e d upon r e q u e s t w i t h o u t c h a r g e : i n o r d e r t o d e r i v e an e s t i m a t e o f t h e i r v a l u e , B i s h o p and H e b e r l e i n e s t a b l i s h e d t h r e e randomly s e l e c t e d groups o f h u n t e r s who e i t h e r (a) r e - c e i v e d n o n - n e g o t i a b l e c a s h o f f e r s f o r t h e i r p e r m i t s i n the m a i l , w i t h payments v a r y i n g between $1.00 and $200.00; (b) r e c e i v e d q u e s t i o n n a i r e s d e s i g n e d t o p r o v i d e a h y p o t h e t i c a l measure o f p e r m i t v a l u e ; o r (c) r e c e i v e d q u e s t i o n s d e s i g n e d t o d e v e l o p a t r a v e l c o s t measure o f v a l u e . W h i l e t h e r e s p o n s e t o c a s h o f f e r s i n d i c a t e d an a v e r a g e compensation demanded o f a p p r o x i m a t e l y $63.00 p e r p e r m i t , h y p o t h e t i c a l measures a v e r a g e d $101.00 f o r p a r t i c i p a n t s . ' w i l l i n g n e s s t o s e l l and o n l y $21.00 f o r t h e w i l l i n g n e s s t o pay a l t e r n a t i v e . These d i f f e r e n c e s prompted B i s h o p and Heber- l e i n t o c o n c l u d e t h a t both s t r a t e g i c and h y p o t h e t i c a l b i a s e s "do have s i g n i f i c a n t impacts on HV ( h y p o t h e t i c a l ) and TC ( t r a v e l c o s t ) . v a l u e s f o r r e c r e a t i o n and o t h e r e x t r a m a r k e t goods" (p. 929). While t h i s argument a p p e a r s j u s t i f i e d on t h e b a s i s o f t h e i r e x p e r i m e n t a l r e s u l t s , i t i s d i f f i c u l t t o e v a l u a t e t h e r e l a t i v e e f f e c t o r magnitude o f i n d i v i d u a l s o u r c e s o f b i a s . 45 Moreover, t h e i r d i s c u s s i o n i m p l i e s t h a t the a c t u a l v a l u e o f $63.00 per p e r m i t p r o v i d e s an a c c u r a t e measure o f i n d i v i d u a l s ' a v e r a g e w i l l i n g n e s s t o pay. Y e t i t i s c l e a r t h a t a c l o s e d - e n d e d a p p roach r e p r e s e n t s o n l y one o f s e v e r a l p o s s i b l e e v a l u a t i o n t e c h n i q u e s : w i t h o u t a s t r a i g h t f o r w a r d c o m p a r i s o n o f a l t e r n a t i v e s , i t i s n o t p o s s i b l e t o s t a t e which method might p r o v i d e t h e b e s t measure. The r e s u l t s o f s e v e r a l c o m p a r i s o n s o f c l o s e d - e n d e d , b i d d i n g game and open-ended measures o f consumer's s u r p l u s w i l l t h e r e f o r e be p r e s e n t e d i n C h a p t e r VI. 46 CHAPTER IV BEHAVIORAL CONCERNS IN THE MEASUREMENT OF NON-MARKET VALUES THE PERCEPTION OF UTILITY The a s s e r t i o n s o f u t i l i t y t h e o r y a r e so fundamental t o most s t u d i e s o f p r e f e r e n c e r e v e l a t i o n and d e c i s i o n making t h a t t h e i r a u t h o r s have l o n g s i n c e assumed t h a t r e a d e r s w i l l a c c e p t i t s major t e n e t s as g i v e n . In f a c t , modern economics now uses t h e terms " u t i l i t y " and< " w e l f a r e " a l m o s t i n t e r - c h a n g e a b l y t o s i g n i f y t h e s a t i s f a c t i o n o r w e l l - b e i n g t h a t i s c r e a t e d f o r an i n d i v i d u a l t h r o u g h t h e consumption o f a good o r t h e p u r s u i t o f an a c t i v i t y . The a s s u m p t i o n s o f u t i l i t y t h e o r y were f i r s t r i g o r o u s l y d e f i n e d by Von Neumann and M o r g e n s t e r n i n t h e e a r l y 1940s. With an i m p r e s s i v e sense o f e l e g a n c e t h e y f o r m a l l y d e m o n s t r a t e d t h a t t h e u t i l i t y o f an u n c e r t a i n a c t i s e q u a l t o t h e m a t h e m a t i c a l e x p e c t a t i o n (an o b j e c t i v e p r o b a b i l i t y - w e i g h t e d a v e r a g e ) o f t h e ( c a r d i n a l ) u t i l i t i e s o f .the a s s o c i a t e d outcomes. The t h e o r y has been c o n s i d e r a b l y e x t e n d e d s i n c e t h a t t i m e , w i t h Savage (1954) a d v a n c i n g t h e n o t i o n o f s u b j e c t i v e p r o b a b i l i t i e s and numerous a u t h o r s s u g g e s t i n g a l t e r - n a t i v e a p p r o a c h e s t o the s p e c i f i c a t i o n and w e i g h t i n g o f u t i l i t i e s . In g e n e r a l , however, a l l o f t h e s e methods o f f e r a p r e s c r i p t i v e a n a l y s i s o f r a t i o n a l c h o i c e , advance a s i n g l e c r i t e r i o n f o r d e c i s i o n makers and propose m a x i m i z a t i o n o f t h e c r i t e r i o n as a g u i d e t o s e l e c t i n g among o p t i o n s . So l o n g as an i n d i v i d u a l ' s p r e f e r e n c e s a l s o s a t i s f y c e r t a i n b a s i c axioms o f r a t i o n a l b e h a v i o r , t h i s t h e o r y says t h a t t h e way i n which i n d i v i d u a l s a s s i g n u t i l i t i e s t o outcomes w i l l be c o n s i s t e n t w i t h t h e m a x i m i z a t i o n o f e x p e c t e d u t i l i t y . 47 These r e q u i r e m e n t s o f r a t i o n a l b e h a v i o r i n c l u d e t h e c o n d i t i o n s o f c o n s i s t e n c y and c o h e r e n c y . For c h o i c e s t o be c o n s i s t e n t , a p e r s o n must ex- h i b i t p r e f e r e n c e s which a r e t r a n s i t i v e and obey the r u l e s o f dominance, so t h a t i f one o f two a l t e r n a t i v e s i s s u p e r i o r i n a l l d i m e n s i o n s i t w i l l always be s e l e c t e d . I m p l i c i t i n t h e s e c r i t e r i a i s t h e sense t h a t p r e s e n t a c t i o n s r e f l e c t a s e t o f v a l u e s which w i l l s t i l l be r e l e v a n t when t h e i r outcomes a r e r e a l i z e d . For c h o i c e s t o be c o h e r e n t , an i n d i v i d u a l must e x h i b i t w e l l - o r d e r e d preference's ( c h a r a c t e r i z e d by n o n - i n t e r s e c t i n g i n d i f f e r e n c e c u r v e s ) and know what he o r she wants i n t h e sense o f b e i n g a b l e t o compare a l t e r n a - t i v e s and d e c i d e whether one i s p r e f e r r e d o r both a r e e q u a l l y d e s i r a b l e . V a l u e s must a l s o be i n d e p e n d e n t o f c h o i c e s and a p e r s o n ' s r e s u l t a n t b e h a v i o r i n t h e s ense t h a t what one b e l i e v e s i s g o i n g t o o c c u r must be d i s t i n g u i s h e d f r o m what one would l i k e t o o c c u r ( H o g a r t h , 1980). T h i s p i c t u r e o f a p e r s o n as a complete r a t i o n a l d e c i s i o n maker r e a l l y a d d r e s s e s two s e t s o f c o n c e r n s : what do we t h i n k w i l l happen i n the f u t u r e and how do we t h i n k we w i l l f e e l a bout i t a t the t i m e . I t i s e l e g a n t , c o n s i s t e n t and l o g i c a l l y s a t i s f y i n g . As d e m o n s t r a t e d by both c a r e f u l ob- s e r v a t i o n and a l a r g e number o f e m p i r i c a l t e s t s , however, i t i s a l s o i n some ways wrong and i n o t h e r ways o n l y p a r t i a l l y c o r r e c t . The r e q u i r e d a d j u s t - ments would be l e s s s e v e r e i f u t i l i t y t h e o r y had remained a p r e s c r i p t i v e a n a l y s i s , s i n c e few have c l a i m e d t h a t p e o p l e a c t u a l l y go t h r o u g h t h e mech- a n i s t i c s t e p - b y - s t e p m a x i m i z a t i o n p r o c e d u r e s e n v i s i o n e d by n o r m a t i v e models. But because o f the c l o s e l i n k s between modern economic t h o u g h t and u t i l i t y t h e o r y , t h e a p p l i c a t i o n o f economic a n a l y s i s has u n a v o i d a b l y l e d t o the wide- s p r e a d employment o f u t i l i t y t h e o r y as a d e s c r i p t i o n o f a c t u a l d e c i s i o n making and p r e f e r e n c e e v a l u a t i o n b e h a v i o r . S t r i p p e d o f i t s n o r m a t i v e b a s i s , t h e framework s u g g e s t e d by u t i l i t y t h e o r y — o r , as F i s c h h o f f , S h a p i r o and 48 G o i t e i n (1979) have s a i d , t h e " e x p e r i e n c e d u t i l i t y o f e x p e c t e d u t i l i t y a p p r o a c h e s " - - r e q u i r e s a'more fundamental r e - i n t e r p r e t a t i o n . A d j u s t m e n t s t o t h e f i r s t q u e s t i o n , which c o n c e r n s d e c i s i o n making under c o n d i t i o n s o f u n c e r t a i n t y , form the b a s i s o f t h e arguments o f Simon (1956; 1979), March (1978) and o t h e r s which f a l l under the h e a d i n g o f bounded r a t i o n a l i t y . The a p p r o a c h emphasizes t h a t t h e c o m p l e x i t y o f the e n v i r o n m e n t and c o g n i t i v e l i m i t a t i o n s o f t h e d e c i s i o n maker may d i c t a t e the c o n s t r u c t i o n o f more s i m p l i f i e d , s e q u e n t i a l ( o r l e x i c o g r a p h i c ) p r e f e r e n c e - e v a l u a t i o n models based on a d e s i r e t o s a t i s f i c e r a t h e r than t o maximize. In c o n t r a s t t o u t i l i t y t h e o r y , models o f bounded r a t i o n a l i t y s u g g e s t t h a t the v a l u a t i o n o f p r e f e r e n c e s f o r non-market goods w i l l l i k e l y be c h a r a c t e r i z e d n o t by the a c c u r a t e a s sessment o f p o t e n t i a l r i s k s but by t h e i r m i s r e p r e s e n t a t i o n o r d e n i a l ; n o t o n l y by p r o b a b i l i s t i c t h i n k i n g but a l s o by i t s a v o i d a n c e and sub- j e c t i v e a d j u s t m e n t ; n o t by t h e f u l l c o n s i d e r a t i o n o f consequences o r a l t e r - n a t i v e s but by a p a r t i a l and b i a s e d c h o i c e o f d a t a c o n s i s t e n t w i t h t h e p r e - c o n c e p t i o n s o f t h e i n d i v i d u a l d e c i s i o n maker. A l t h o u g h a c o n n e c t i o n i s o b v i o u s , t h e f o c u s o f the p r e s e n t s t u d y i s more c l o s e l y a l i g n e d w i t h t h e second q u e s t i o n , which asks how f u t u r e c h o i c e s a r e l i k e l y t o be e v a l u a t e d on the b a s i s o f an i n d i v i d u a l ' s p r e s e n t and a n t i c i p a t e d p r e f e r e n c e s . T h i s i m m e d i a t e l y i n v o l v e s t h e p o s s i b i l i t y o f change, both i n a p e r s o n ' s v a l u e s and i n t h e t y p e o f c h o i c e s which a r e p r e - s e n t e d . However, n e i t h e r u t i l i t y t h e o r y n o r t h e a d j u s t m e n t s proposed under models o f bounded r a t i o n a l i t y have e x p l i c i t l y a d d r e s s e d v a l u e s which a r e i n c o n s i s t e n t o r ambiguous, which may change o v e r time i n r e s p o n s e t o an i n d i v i d u a l ' s b e h a v i o r and s t r a t e g i c c o n s i d e r a t i o n s , o r which v a r y i n r e s p o n s e t o s l i g h t a l t e r a t i o n s i n t h e f r a m i n g o f c h o i c e s . One o f f o u r r e s p o n s e s i s l i k e l y . F i r s t , r e c a l c i t r a n t b e h a v i o r may be c o n s i d e r e d t o be t h e a r t i f a c t o f a b i a s e d o r c o n t r i v e d o b s e r v a t i o n a l 49 p r o c e d u r e and d i s m i s s e d as u n i n t e r e s t i n g . Second, o b s e r v e d p r e f e r e n c e s may e n c o u n t e r a P r o c u s t e a n t h e o r e t i c a l s t r u c t u r e which amputates, e l o n g a t e s , t w i s t s and t u r n s t h e i n c o m i n g d a t a so t h a t i t f i t s t he a s s i g n e d c o n c e p t u a l bed. A t h i r d and more s a t i s f a c t o r y a p p roach i s s i m p l y t o e s t a b l i s h a l i s t o f a d j u s t m e n t s which must be made t o t h e e x p e c t e d u t i l i t y d e s c r i p t i o n s under t h i s o r t h a t c o n d i t i o n . Much o f t h e l i t e r a t u r e on s o c i a l judgement ( N i s b e t t and Ross, 1980) and b e h a v i o r a l d e c i s i o n t h e o r y ( S l o v i c e_t a l _ . , 1977), Kun- r e u t h e r ' s s t u d i e s o f low p r o b a b i l i t y e v e n t s ( K u n r e u t h e r et^ a l _ . , 1978), G r e t h e r and P l o t t ' s (1979) work on p r e f e r e n c e r e v e r s a l s and T h a l e r ' s (1980) d e s c r i p - t i o n o f consumer c h o i c e b e h a v i o r may a l l be viewed i n t h i s l i g h t . However, i t i s o b v i o u s t h a t as t h e l i s t o f e x c e p t i o n s grows, so too does t h e s t r a i n p l a c e d on the o r i g i n a l model. A f o u r t h a p p r o a c h would i n v o l v e the i n t r o d u c t i o n o f a new i n t e g r a t - i v e p aradigm, and i n 1979 t h i s appeared i n t h e form o f P r o s p e c t T h eory. As d e v e l o p e d by Kahneman and T v e r s k y (1979a) and T v e r s k y and Kahneman (198 1 ) , t h e proposed d e s c r i p t i v e framework f o r a n a l y s i n g c h o i c e s made under u n c e r - t a i n t y i s a b l e t o s u c c e s s f u l l y accommodate many o f t h e o b s e r v a t i o n s o f p r e f - e r e n c e which were i n c o m p a t i b l e w i t h a s t r i c t l y u t i l i t y m a x i m i z a t i o n framework. P r o s p e c t t h e o r y a d d r e s s e s t h e same two key a s p e c t s o f d e c i s i o n making which a r e e x p r e s s e d i n u t i l i t y t h e o r y by c a r d i n a l u t i l i t i e s and by s t a t i s t i c a l p r o b a b i l i t i e s . However, a v a l u e f u n c t i o n , v ( x ) , now l i n k s each p o s s i b l e o u t - come o f a gamble o r p r o s p e c t w i t h an a p p r a i s a l o f i t s s u b j e c t i v e worth w h i l e a w e i g h t i n g f u n c t i o n , T T ( p ) , i d e n t i f i e s t h e s u b j e c t i v e i m p o r t a n c e which i s a t t a c h e d t o the p r o b a b i l i t y o f o b t a i n i n g each p o s s i b l e outcome. The a t t r a c - t i v e n e s s o f a c h o i c e t h a t e i t h e r y i e l d s outcome x w i t h p r o b a b i l i t y p o r a chance o f q t o g a i n o r l o s e y i s t h e r e f o r e equal t o T T ( p ) v ( x ) + T T ( q ) v ( y ) . Outcomes a r e e x p r e s s e d not i n terms o f f i n a l a s s e t p o s i t i o n s but i n 50 terms o f the g a i n s o r l o s s e s ( p o s i t i v e o r n e g a t i v e d e v i a t i o n s ) which t h e y r e p r e s e n t from some n e u t r a l r e f e r e n c e outcome. T h i s s u b j e c t i v e l y d e f i n e d r e f e r e n c e p o i n t , a s s i g n e d a v a l u e o f z e r o , c o u l d r e p r e s e n t a p e r s o n ' s p e r - c e i v e d c u r r e n t s t a t u s , h i s o r her a n t i c i p a t e d f u t u r e s t a t u s o r any o t h e r p s y c h o l o g i c a l l y s i g n i f i c a n t outcome. A second s p e c i f i c a t i o n o f the v a l u e f u n c t i o n i s t h a t i t i s s t e e p e r f o r l o s s e s than f o r g a i n s , so t h a t an u n p l e a s - a n t change i n s t a t u s e l i c i t s a more extreme r e s p o n s e than a d e s i r a b l e change. A p e r s o n ' s v a l u e f u n c t i o n i s a l s o c o n s i d e r e d t o be S-shaped, so t h a t i t i s concave above t h e r e f e r e n c e p o i n t and convex below i t ( s e e F i g u r e 4 ) . As a r e s u l t , a p e r s o n becomes i n c r e a s i n g l y l e s s s e n s i t i v e t o a g i v e n monetary d i f f e r e n c e o r change i n outcomes as t h e t o t a l p r i c e s o r s t a k e s t h a t a r e i n - v o l v e d i n c r e a s e . . The p r o b a b i l i t y w e i g h t i n g f u n c t i o n r e p l a c e s the s t a t i s t i c a l probab- i l i t i e s employed i n u t i l i t y t h e o r y by b e h a v i o r a l l y more r e a l i s t i c d e c i s i o n w e i g h t s . In a c c o r d w i t h Kahneman and T v e r s k y ' s e a r l i e r e m p i r i c a l f i n d i n g s , t h e r e d e f i n e d n o n - l i n e a r f u n c t i o n (see F i g u r e 5) has t h e e f f e c t o f g i v i n g s p e c i a l c o n s i d e r a t i o n t o both c e r t a i n and low p r o b a b i l i t y e v e n t s w h i l e under- w e i g h t i n g i n t e r m e d i a t e and h i g h p r o b a b i l i t y outcomes. One i m p o r t a n t c o n s e - quence i s t h a t t h e a t t r a c t i v e n e s s o f g a i n s o r t h e a v e r s i v e n e s s o f l o s s e s which a r e c e r t a i n i s e x a g g e r a t e d r e l a t i v e t o g a i n s o r l o s s e s t h a t a r e m e r e l y p r o b a b l e . For example, the p r o s p e c t o f l o s i n g $x w i t h p r o b a b i l i t y 1.0 i s more th a n t w i c e as a v e r s i v e as p o s s i b l y l o s i n g the same amount w i t h probab- i l i t y .5. However, a .5 chance o f w i n n i n g $y i s not p e r c e i v e d to be t w i c e as a t t r a c t i v e as a . 2 5 chance o f w i n n i n g the same amount. The c h a r a c t e r i s t i c n o n l i n e a r i t i e s o f the v a l u e and p r o b a b i l i t y w e i g h t i n g f u n c t i o n s employed i n prospect' t h e o r y i m p l y t h a t the s p e c i f i c p e r - s p e c t i v e t h a t an i n d i v i d u a l u t i l i z e s t o e v a l u a t e a d e c i s i o n p r o b l em x a n - a f f e c t 51 v a l u e L o s s e s F i g u r e 4 A H y p o t h e t i c a l V a l u e F u n c t i o n S o u r c e : T v e r s k y and Kahneman, 1981. 0 075 1.0 s t a t e d p r o b a b i l i t y : p F i g u r e 5 . ' A H y p o t h e t i c a l W e i g h t i n g F u n c t i o n S o u r c e : T v e r s k y and Kahneman, 1981. 52 h i s c h o i c e . The term " d e c i s i o n frame" i s used by Kahneman and T v e r s k y t o d e s c r i b e a d e c i s i o n maker's s u b j e c t i v e c o n c e p t i o n o f the a c t s ( o p t i o n s ) , o u t - comes ( c o n s e q u e n c e s ) and c o n t i n g e n c i e s ( c o n d i t i o n a l p r o b a b i l i t i e s ) a s s o c i a t e d w i t h a p a r t i c u l a r c h o i c e s i t u a t i o n . A l t h o u g h the frame which i s adopted w i l l i n p a r t r e f l e c t an i n d i v i d u a l ' s p e r s o n a l c h a r a c t e r i s t i c s and h a b i t s , i t i s a l s o o f t e n p o s s i b l e f o r a g i v e n d e c i s i o n problem to be framed i n a number o f a l t e r n a t i v e ways. As a r e s u l t , changes i n r e v e a l e d p r e f e r e n c e s can accompany c o n s c i o u s o r u n c o n s c i o u s changes i n the f r a m i n g o f a c t s , outcomes o r c o n t i n - g e n c i e s . S p e c i f i c examples o f c o n s e q u e n t i a l m a n i p u l a t i o n s o f d e c i s i o n f r a m e s , which a r e p r e d i c t e d under p r o s p e c t t h e o r y but a n t i c i p a t e d t o be i r - r e l e v a n t under an e x p e c t e d u t i l i t y framework, w i l l be p r e s e n t e d i n C h a p t e r VI. A r e l a t e d i m p l i c a t i o n o f p r o s p e c t t h e o r y i s t h a t the way i n which d e c i s i o n s a r e made can e x e r t a s i g n i f i c a n t i n f l u e n c e on a p e r s o n ' s o b s e r v e d b e h a v i o r . As a r e s u l t , t h e p o t e n t i a l e f f e c t e x e r t e d by the s p e c i f i c p r o c e s s which i s employed i n a d d r e s s i n g a d e c i s i o n p r o b l e m — w h a t Kahneman has termed "manner v a r i a b l e s " and I l a t e r r e f e r t o as " p r o c e s s " c o n s i d e r a t i o n s — m u s t be c o n s i d e r e d as p a r t o f any p r e f e r e n c e v a l u a t i o n p r o c e d u r e . In f a c t , the manner i n which an . a c t i o n i s p erformed may prove to be more i m p o r t a n t t h a n the a c t u a l good t h a t i s e v e n t u a l l y o b t a i n e d . A l t h o u g h t h i s view i s c o n s i d e r e d as p a r t o f some t r a v e l - c o s t models and i s i m p l i e d i n a s s e ssments which r e c o g n i z e t h e s t a t e v a l u e o f e n v i r o n m e n t a l r e s o u r c e s , p r o c e s s c o n s i d e r a t i o n s have g e n e r a l l y t e n ded t o be e i t h e r i g n o r e d by modern economic t h o u g h t o r i n e l e g a n t l y lumped t o g e t h e r under the h e a d i n g o f " t r a n s - a c t i o n s c o s t s . " T h i s l a c k o f a t t e n t i o n w i l l be found i n most e x p e c t e d u t i l i t y m odels, which have m i n i m i z e d the s i g n i f i c a n c e o f an i n d i v i d u a l ' s sub- j e c t i v e b a l a n c i n g o f mental c o s t s . I t i s as i f t h e r e were tho u g h t t o be two d i s t i n c t measures o f v a l u e , an e x t e r n a l a c c o u n t (worthy o f s t u d y ) d e a l i n g w i t h 53 t h e o b j e c t i v e b e n e f i t s and c o s t s which a r i s e i n c o n n e c t i o n w i t h the d i r e c t a c q u i s i t i o n o f goods and a second i n t e r n a l a c c o u n t ( n o t worthy o f s t u d y ) con- c e r n e d w i t h t h e p s y c h i c b e n e f i t s and c o s t s a s s o c i a t e d w i t h a p a r t i c u l a r manner o f a c t i o n . For a s u b s t a n t i a l number o f goods and a c t i v i t i e s , however, n o t o n l y might e m o t i o n a l and e t h i c a l c o n s i d e r a t i o n s form an i n t e g r a l p a r t o f the p e r - c e i v e d p r o d u c t but the manner i n which an e n d - s t a t e i s a c h i e v e d may a l s o e x e r t a s i g n i f i c a n t i n f l u e n c e on an i n d i v i d u a l 1 s t r u e p r e f e r e n c e s . P r o s p e c t t h e o r y removes the p r o t e c t i v e v e i l o f e x p e c t e d u t i l i t y models and p r o v i d e s an i n i t i a l c o n c e p t u a l base f o r the i n c o r p o r a t i o n and f u r t h e r e x p l o r a t i o n o f p r o c e s s c o n s i d e r a t i o n s . C h a p t e r VI w i l l d i s c u s s t h e s u b j e c t o f t r a n s a c t i o n s c o s t s i n more d e t a i l and r e p o r t on t h e r e s u l t s o f s e v e r a l e x p e r i m e n t s which t e s t the s i g n i f i c a n c e o f p r o c e s s v a r i a b l e s i n the c o n t e x t o f s u r v e y measures o f v a l u e . THE SIGNIFICANCE OF BIAS T h i s s e c t i o n w i l l e x p l o r e a number o f ways i n which b i a s e d r e s p o n s e s can a r i s e when i n f o r m a t i o n o b t a i n e d f r o m i n t e r v i e w s o r q u e s t i o n n a i r e s i s used t o e s t i m a t e t h e v a l u e o f non-market goods. Such d i s t o r t i o n s a r e s a i d t o r e s u l t i n b i a s r a t h e r than m e r e l y c o n f u s i o n when d e v i a t i o n s from s t a t i s - t i c a l p r e d i c t i o n a r e s y s t e m a t i c r a t h e r t h a n random. The s o u r c e s o f b i a s c o n s i d e r e d i n t h i s s e c t i o n a r e a l l endogenous i n t h e sense t h a t t h e y a r i s e w i t h i n t h e c o n t e x t o f t h e measurement p r o c e s s i t s e l f , i n c o n t r a s t t o a wide range o f exogenous f a c t o r s (such as income l e v e l s , age o r sex o f p a r t i c i p a t - i n g i n d i v i d u a l s , r e s i d e n c y and t h e l i k e ) which c o u l d a l s o be r e s p o n s i b l e f o r d i s t o r t e d e x p r e s s i o n s o f e n v i r o n m e n t a l p r e f e r e n c e s . B i a s e s a r e s i g n i f i c a n t because t h e y r e p r e s e n t one cause o f i n a c c u r a t e 54 r e s p o n s e s . T h i s i m p l i e s t h a t t h e r e p o r t e d v a l u e s o f non-market goods w i l l d i f f e r from t h e i r t r u e v a l u e s , which a r e t h o u g h t t o be c o n s i s t e n t w i t h the b e h a v i o r t h a t would be r e v e a l e d i f t h e good i n q u e s t i o n were o f f e r e d i n a market where e x c l u s i o n was p o s s i b l e . In most s u r v e y r e s e a r c h l i t e r a t u r e a p e r s o n ' s t r u e v a l u e s a r e c o n s i d e r e d t o be an o b j e c t i v e magnitude which can be i n d e p e n d e n t l y i d e n t i f i e d and measured. However, i t i s p r e c i s e l y the impos- s i b i l i t y o f o b t a i n i n g o b j e c t i v e measures o f v a l u e f o r most non-market goods t h a t has g i v e n r i s e t o the p r e s e n t r e s e a r c h . J u s t i f i c a t i o n f o r t h i s r e v i e w i s based on the i n a d e q u a t e acknowledge- ment and t r e a t m e n t o f b i a s i n most e x i s t i n g s t u d i e s o f non-market v a l u e s . D e s p i t e an emergent l i t e r a t u r e i n m i c r o - e c o n o m i c s and e n v i r o n m e n t a l manage- ment which a d d r e s s e s t h e s i g n i f i c a n c e o f m o t i v a t i o n a l b i a s e s ( d i s c u s s e d i n C h a p t e r I I I ) and a r a p i d l y growing l i t e r a t u r e i n c o g n i t i v e p s y c h o l o g y and b e h a v i o r a l d e c i s i o n t h e o r y which examines the i n f l u e n c e o f c o g n i t i v e b i a s e s , few a t t e m p t s have been made t o i n v e s t i g a t e t h e i r j o i n t e f f e c t i n the c o n t e x t o f v a l u i n g p r e f e r e n c e s f o r s p e c i f i c non-market goods. The p r e s e n c e o f a communications gap i s n o t s u r p r i s i n g , s i n c e the f e r t i l e w o r k ing ground o f c o g n i t i v e p s y c h o l o g y must a p p e a r as q u i c k s a n d t o the e c o n o m i s t s t e e p e d i n t h e r a t i o n a l maxims o f u t i l i t y t h e o r y . Because o f the s i g n i f i c a n c e o f t h e s e c o n c e r n s f o r the l a t e r a n a l y s i s o f s u r v e y r e s u l t s , t h e d i s c u s s i o n w i l l seek t o e s t a b l i s h a r e l a t i v e l y compre- h e n s i v e framework f o r the i d e n t i f i c a t i o n and c l a s s i f i c a t i o n o f b i a s . A f i r s t s e c t i o n examines major s o u r c e s o f m o t i v a t i o n a l b i a s , d e f i n e d as t h o s e i n t e n - t i o n a l l y i n t r o d u c e d d u r i n g the measurement p r o c e s s . A second s e c t i o n w i l l r e v i e w major forms o f c o g n i t i v e b i a s , whose d i s t o r t i v e e f f e c t i s u n i n t e n t i o n a l and h i g h l y r e s i s t a n t t o change. A t h i r d s e c t i o n w i l l b r i e f l y summarize a number o f s t r a t e g i e s which seek t o l i m i t o r o f f s e t — t h a t i s , d e b i a s — s o m e o f 55 t h e s e e f f e c t s . M o t i v a t i o n a l B i a s e s M o t i v a t i o n a l b i a s e s a r e i n t e n t i o n a l l y i n t r o d u c e d d i s t o r t i o n s o f what the r e s p o n d e n t f e e l s a r e h i s o r her t r u e p r e f e r e n c e s . The c o n s c i o u s n a t u r e o f m o t i v a t i o n a l b i a s e s r e s u l t s i n t h e i r appearance as p a r t o f d i r e c t l y ex- p r e s s e d measurements o f non-market v a l u e s such as t h o s e o b t a i n e d t h r o u g h i n t e r v i e w s , q u e s t i o n n a i r e s , b i d d i n g games o r r e f e r e n d a . The d e l i b e r a t e d i s - t o r t i o n o f t r u e p r e f e r e n c e s may a l s o a p p e a r as p a r t o f o t h e r p r e f e r e n c e measurement a p p r o a c h e s — f o r example, c o u r t r u l i n g s o r government l e g i s l a t i o n may be i n t e n t i o n a l l y b i a s e d so as t o compensate f o r a n t i c i p a t e d i n t e r p r e t a - t i o n s o r t o s e t an example. A l t h o u g h t h e i n c e n t i v e f o r i n t e n t i o n a l l y d i s t o r t i n g r e s p o n s e s i s r e c o g n i z e d i n economic t h e o r y ( f o r example, " s t r a t e g i c b e h a v i o r " and " f r e e r i d e r " .problems a s s o c i a t e d w i t h t h e p r o v i s i o n o f publ i c goods);,. few; appl i e d s t u d i e s have examined t h e r e l a t i v e i n f l u e n c e o f b i a s e s o r l o o k e d a t how i n d i v i d u a l o r s o c i a l i n c e n t i v e s might d i s c o u r a g e the communication o f t r u e p r e f e r e n c e s . S e v e r a l p u b l i s h e d a r t i c l e s which do a d d r e s s the i n f l u e n c e o f b i a s ( f o r example, Rowe e t a l _ . , 1980) d e v e l o p an e x p l a n a t i o n based on a u t i l i t y m a x i m i z a t i o n framework and i m p l i c i t l y assume t h a t d i s t o r t i v e b e h a v i o r i s i n t e n t i o n a l , r a t i o n a l , and r e l a t e d t o p e r c e i v e d end s t a t e s . As has been d i s c u s s e d i n C h a p t e r s II a n d 1 I I I , t h e s e a s s u m p t i o n s d e s c r i b e o n l y one o f s e v e r a l a l t e r n a t i v e models o f p r e f e r e n c e f o r m a t i o n and v a l u a t i o n and f a i l t o e x p l a i n a number o f w i d e l y o b s e r v e d e m p i r i c a l f i n d i n g s . The d i s c u s s i o n o f t h i s s e c t i o n t h e r e f o r e seeks t o s u g g e s t ways i n which c o n v e n t i o n a l e x p l a n a t i o n s o f b i a s i n s t u d i e s o f non-market and p a r t i c u - l a r l y e n v i r o n m e n t a l v a l u e s might p r o f i t a b l y be e x t e n d e d . T h r e e major c l a s s e s o f m o t i v a t i o n a l b i a s a r e c o n s i d e r e d . 56 S t r a t e g i c b i a s . S t r a t e g i c b i a s a r i s e s t h r o u g h t h e a t t e m p t o f i n d i v i d u a l s t o impose t h e i r p r e f e r e n c e s on o t h e r s by e x a g g e r a t i n g t h e i r t r u e f e e l i n g s , t h e r e - by h o p i n g t o i n f l u e n c e t h e c u m u l a t i v e r e p r e s e n t a t i o n o f a v e r a g e p r e f e r e n c e s . A t l e a s t t h r e e r e q u i r e m e n t s must be met: (a) s u b j e c t s must s u s p e c t t h a t t h e i r r e s p o n s e w i l l d i f f e r s u b s t a n t i a l l y from t h o s e o f o t h e r s ; (b) t h e y must p e r c e i v e t h a t t h e e x a g g e r a t i o n o f t h e i r own r e s p o n s e s w i l l a f f e c t t h e e v a l u a - t i o n o f o t h e r s ' r e s p o n s e s but not be d e t r i m e n t a l t o t h e i r own c a u s e ; (c) sub- j e c t s must be w i l l i n g t o be d i s h o n e s t . These r e q u i r e m e n t s can be r e s t a t e d i n terms o f t h e i n d i v i d u a l e x h i b i t i n g (a) some c o n c e p t i o n o f a h y p o t h e t i c a l mean b i d , (b) an u n d e r s t a n d i n g o f s t u d y p r o c e d u r e s , and (c) s u f f i c i e n t t r u s t i n one's own p r e f e r e n c e s and o b j e c t i v e s t o s a n c t i o n l y i n g i n o r d e r t o o b t a i n them. S t r a t e g i c b i a s has r e c e i v e d q u i t e a b i t . o f a t t e n t i o n s i n c e Samuelson (1954) r e d i s c o v e r e d W i c k s e l 1 ' s 1869 argument t h a t p r e f e r e n c e r e v e l a t i o n may be b i a s e d i n the c a s e o f an i n d i v i d u a l ' s e x p r e s s e d w i l l i n g n e s s t o pay f o r p u b l i c goods. Bohm (1972) compared t h e i n f l u e n c e o f s t r a t e g i c b i a s i n f i v e d i f f e r e n t e x p e r i m e n t a l s i t u a t i o n s , w h i l e M a i e r (1974) was among the f i r s t t o d i s c u s s r e s p o n s e b i a s i n e x p r e s s e d p r e f e r e n c e e v a l u a t i o n s o f e n v i r o n m e n t a l s e r v i c e s . S e v e r a l more r e c e n t s t u d i e s ( B r o o k s h i r e e t ajk , 1976) have f o c u s s e d on s t r a t e g i c b i a s e s which a r i s e when u s i n g b i d d i n g games t o d e v e l o p w i l l i n g - ness t o pay measures o f a e s t h e t i c damages. Rowe, d'Arge and B r o o k s h i r e ( 1 9 8 0 ) , f o r example, ask s u r v e y p a r t i c i p a n t s a s i m p l e q u e s t i o n r e g a r d i n g t h e i r e n v i r o n - mental s t a n c e and then e v a l u a t e whether e n v i r o n m e n t a l i s t s i n c r e a s e (and d e v e l o p e r s d e c r e a s e ) t h e i r b i d s r e l a t i v e t o t h o s e p r e v i o u s l y s t a t e d a f t e r b e i n g p r e s e n t e d w i t h i n f o r m a t i o n r e g a r d i n g t h e sample mean. I f s t r a t e g i c b i a s i s p r e s e n t , i t i s e x p e c t e d t h a t f a l s e e x p r e s s i o n s o f v a l u e ( c o n s t r a i n e d t o n o n - n e g a t i v e v a l u e s and some upper l i m i t o f c r e d u l i t y ) w i l l be advanced i n 57 o r d e r t o o f f s e t t h e u n s a t i s f a c t o r y b i d s o f o t h e r s . For example, i f a r e s p o n - d e n t ' s t r u e e v a l u a t i o n i s $10.00 but he o r she f e e l s ( o r i s t o l d , as i n R a n d a l l e t a l _ . , 1974) t h a t , i n a sample o f n i n e o t h e r p e r s o n s , the mean r e s - ponse w i l l be (was) o n l y $6.00, t h e p r e d i c t i o n i s t h a t t h e s t r a t e g i c b i d d e r w i l l q u i c k l y come up w i t h a d i s h o n e s t v a l u e o f $46.00. D e s p i t e the w i d e s p r e a d a c c e p t a n c e o f s t r a t e g i c e f f e c t s t h e r e i s l i t t l e e m p i r i c a l e v i d e n c e t o s u p p o r t t h e i r e x i s t e n c e . Bohm (1 9 7 2 ) , f o r example, e v a l u a t e d d i f f e r e n c e s i n s t r a t e g i c b i a s e s among f i v e sample groups and fou n d t h e i n f l u e n c e t o be s u r p r i s i n g l y s m a l l . S e v e r a l more r e c e n t a r t i c l e s ( R a n d a l l and B r o o k s h i r e , 1978) a s s e r t t h a t i n c e n t i v e s f o r " f r e e - r i d i n g " can be m i n i m i z e d t h r o u g h a c a r e f u l l y d e s i g n e d p r e f e r e n c e r e v e l a t i o n s t r a t e g y . An a t tempt t o i n f l u e n c e mean b i d s i s more d i f f i c u l t to i s o l a t e but a l s o more d i f f i c u l t t o u n d e r t a k e as i t r e q u i r e s some a c c e s s t o i n f o r m a t i o n r e g a r d i n g s u r v e y d e s i g n as w e l l as an adequate c o m p u t a t i o n a l a b i l i t y . A t p r e s e n t i t a p p e a r s s a f e t o say t h a t s t r a t e g i c b e h a v i o r i s b e t t e r viewed as an i s o l a t e d malady r a t h e r t h a n a u n i v e r s a l e p i d e m i c , and t h a t c a r e i n s u r v e y d e s i g n and i m p l e m e n t a t i o n s h o u l d i n s u r e t h a t t h e e f f e c t w i l l r a r e l y prove t e r m i n a l . I n f o r m a t i o n b i a s . S e v e r a l p r i n c i p a l s o u r c e s o f i n f o r m a t i o n b i a s can be d i s - t i n g u i s h e d , a l t h o u g h c a r e must be t a k e n n o t t o c o n f u s e c o n s c i o u s d i s t o r t i o n s o f i n f o r m a t i o n w i t h u n i n t e n t i o n a l c o g n i t i v e b i a s e s . The f i r s t and most f r e q u e n t t y p e o f i n f o r m a t i o n b i a s a r i s e s from t h e i n t e r a c t i o n between the s u r v e y i n t e r v i e w e r and r e s p o n d e n t , w i t h b i a s i n t r o d u c e d by e i t h e r p a r t y . For example, t o t h e e x t e n t t h a t an i n t e r v i e w e r i s f l i p p a n t , a r r o g a n t o r b o r i n g a r e s p o n d e n t may become f r u s t r a t e d , annoyed o r f a t i g u e d and p u r p o s e f u l l y b e g i n t o make t h i n g s d i f f i c u l t f o r t h e a n a l y s t by i n t r o d u c i n g e r r o n e o u s d a t a o r by s t a t i n g extreme judgements which r e f l e c t a f a l s e sense o f c l a r i t y and c o n f i - 58 dence. I n d i v i d u a l s may a l s o r e a s o n t h a t anyone a s k i n g q u e s t i o n s about en- v i r o n m e n t a l o p t i o n s , f o r example, i s an a c t i v i s t and i n o r d e r t o p l e a s e him assume a s i m i l a r l y p r e s e r v a t i o n i s t s t a n c e . On the o t h e r hand, an i n t e n t i o n - a l l y r a i s e d eyebrow, d u b i o u s "hmmmirm'.' o r a l t e r e d tone o f v o i c e on t h e p a r t o f an i n t e r v i e w e r can s e v e r e l y d i s t o r t ( e i t h e r randomly o r s y s t e m a t i c a l l y — t h a t i s , r e s u l t s may be c o n f u s e d r a t h e r than b i a s e d ) t h e r e s p o n s e s which a r e o b t a i n e d . A second form o f i n f o r m a t i o n b i a s i s r o o t e d i n t h e n a t u r e o f the s u r v e y i s s u e i t s e l f . P a r t i c u l a r l y i n t h e case o f h i g h l y c o n t e n t i o u s e n v i r o n - mental d i s p u t e s , both p a r t i e s may have formed such c l e a r l y e s t a b l i s h e d b a t t l e l i n e s t h a t a c c u r a t e r e s p o n s e s a r e i m p o s s i b l e t o o b t a i n and r e s u l t s i n s t e a d r e p r e s e n t c h a r i c a t u r e s o f t r u e p r e f e r e n c e s . In t h i s c a s e q u e s t i o n s o f t i m i n g ( f o r example, b e f o r e / a f t e r an e l e c t i o n ) o r s p o n s o r s h i p ( f o r example, whether t h e s u r v e y i s c o n d u c t e d by a n a t u r e c l u b o r a u t i l i t y ) c o u l d prove s i g n i f i - ' c a n t ; A r e l a t e d form o f t h i s b i a s , d e r i v e s from a n , i m p l i c i t sense o f s o c i a l norms, so t h a t t h e c i t y s hopkeeper who hate s w i l d e r n e s s o r the backwoods f a r m e r who would be s e c r e t l y p l e a s e d i f brownouts d i s r u p t e d urban l i f e may both f e e l c o n s t r a i n e d t o m i s r e p r e s e n t t h e s t r e n g t h o f t h e i r t r u e p r e f e r e n c e s when s u r v e y e d . H y p o t h e t i c a l b i a s . T h i s t y p e o f m o t i v a t i o n a l b i a s i s t h o u g h t t o a r i s e because o f t h e h y p o t h e t i c a l n a t u r e o f the s u r v e y q u e s t i o n s which a r e employed. For example, when p e o p l e a r e asked t o s t a t e t h e maximum e n t r a n c e f e e th e y would be w i l l i n g t o pay t o v i s i t a park o r t h e i r maximum annual t a x c o n t r i b u - t i o n t o improve a i r q u a l i t y , t h e r e i s g e n e r a l l y an i m p l i c i t r e c o g n i t i o n on t h e p a r t o f both i n t e r v i e w e r and s u b j e c t t h a t t h e v e r b a l r e s p o n s e which i s o b t a i n e d w i l l n o t be t r a n s l a t e d i n t o an immediate demand f o r c o r r e s p o n d i n g o v e r t b e h a v i o r . As a r e s u l t , t h e r e s p o n d e n t does n o t have t o a b i d e by o r 59 l i v e w i t h t h e consequences o f h i s answer. Many r e s e a r c h e r s have f e l t t h a t s u b j e c t s ' m o t i v a t i o n t o f o r m u l a t e an a c c u r a t e r e s p o n s e w i l l be c o r r e s p o n d i n g l y d e c r e a s e d , so t h a t t h e l a t e r use o f t h e s e same s u r v e y measures t o h e l p formu- l a t e p u b l i c p o l i c y c o u l d r e s u l t i n a b i a s e d r e p r e s e n t a t i o n o f s o c i a l p r e f e r - e n c e s . S i n c e both p s y c h o l o g i s t s and e c o n o m i s t s have been c o n c e r n e d w i t h t h e problem, e v i d e n c e from both s i d e s w i l l be b r i e f l y r e v i e w e d . S o c i a l p s y c h o l o g i s t s have framed the d i s c u s s i o n i n terms o f the r e l a t i o n between an i n d i v i d u a l ' s a t t i t u d e s and h i s subsequent b e h a v i o r . F o r many y e a r s , a t t i t u d e s were viewed as " e v a l u a t i v e p r e d i s p o s i t i o n s " , (Cohan-, 1969:137) and were t h o u g h t t o p r o v i d e an a c c u r a t e i n d i c a t i o n o f how a p e r s o n would behave. In f a c t , i t was not u n t i l L a P i e r e ' s c l a s s i c 1934 s t u d y o f d i s - c r e p e n c i e s between t h e a t t i t u d e s and b e h a v i o r o f h o t e l and r e s t a u r a n t owners toward m i n o r i t i e s t h a t the r e l a t i o n was w i d e l y q u e s t i o n e d . In r e c e n t y e a r s , a l a r g e number o f p u b l i s h e d s t u d i e s have r a i s e d doubts about the use o f a t t i t u d i n a l measures t o d e s c r i b e b e h a v i o r . Some a u t h o r s t a k e t h e p o s i t i o n t h a t t h e r e i s " l i t t l e e v i d e n c e t o s u p p o r t the pos- t u l a t e d e x i s t e n c e o f s t a b l e , u n d e r l y i n g a t t i t u d e s w i t h i n the i n d i v i d u a l which i n f l u e n c e both h i s v e r b a l e x p r e s s i o n s and h i s a c t i o n s " ( W i c k e r , 1969:173). O t h e r s r e t a i n t he l i n k between a t t i t u d e s and b e h a v i o r but s t r e s s t h a t r e s e a r c h e r s must be c a r e f u l t o s p e c i f y t h a t both the t a r g e t and the t y p e o f a c t i o n under c o n s i d e r a t i o n remain t h e same."'' In a d d i t i o n , t h e r e i s a r e c o g - n i t i o n t h a t o t h e r f a c t o r s — s u c h as an i n d i v i d u a l ' s n o r m a t i v e b e l i e f s , h i s m o t i v a t i o n t o comply w i t h t h e s e norms and a v a r i e t y o f s i t u a t i o n a l f a c t o r s - - may a l s o f i g u r e p r o m i n e n t l y i n a p e r s o n ' s o v e r a l l r e s p o n s e t o an o b j e c t o r A group o f e c o n o m i s t s based a t t h e U n i v e r s i t y o f Wyoming, whose work i s r e v i e w e d i n some d e t a i l i n C h a p t e r I I I , have perhaps pushed t h i s v i e w p o i n t f a r t h e s t . As o u t s p o k e n p r o p o n e n t s o f s u r v e y a p p r o a c h e s , t h e y employ t h i s F i s h -b e i n - A j z e n argument and a s s e r t t h a t a t t i t u d e s w i l l c l o s e l y p r e d i c t b e h a v i o r so 60 a c t i v i t y ( A j z e n and F i s h b e i n , 1977). Economists seem t o f a l l i n t o two u n e q u a l l y - s i z e d s c h o o l s o f t h o u g h t on t h i s i s s u e . The l a r g e r group c l i n g s t o the supremacy o f m a r k e t - g e n e r a t e d d a t a and h o l d s a g u t - l e v e l f e e l i n g t h a t r e s p o n s e s t o h y p o t h e t i c a l q u e s t i o n s s h o u l d be m i s t r u s t e d . Fromm (1968:174), f o r example, s t a t e d t h a t " i t i s w e l l known t h a t s u r v e y s t h a t ask h y p o t h e t i c a l q u e s t i o n s r a r e l y e n j o y a c c u r a t e r e s p o n s e s . " A l t h o u g h t h e l o g i c has a c e r t a i n v i s c e r a l a t t r a c t i o n - - a s k a h y p o t h e t i c a l q u e s t i o n and you g e t a h y p o t h e t i c a l answer--the s t u d y by B i s h o p and H e b e r l e i n (1979) p r o v i d e s one o f the few p u b l i s h e d examples and the p o s i t i o n g e n e r a l l y a p p e a r s t o r e l y l e s s on o b s e r v a t i o n o r o b j e c t i v e s c i e n c e " " than on l a r g e l y u n t e s t e d p r e c o n c e p t i o n s . A second group has f o c u s s e d on a n a l y z i n g the c o s t s , i n terms o f both t i m e and mental e n e r g y , t h a t a r e a s s o c i a t e d w i t h g a t h e r i n g and p r o c e s s i n g i n f o r m a t i o n a b o u t a h y p o t h e t i c a l s i t u a t i o n . The g e n e r a l f e e l i n g here seems to be t h a t w h i l e some i n d i v i d u a l s a r e i n h e r e n t l y l a z y o r would d e r i v e s a t i s - f a c t i o n f r o m m i s l e a d i n g a r e s e a r c h e r , most p e o p l e would p r e f e r t o t e l l t h e t r u t h and do. The a t t i t u d e o f Kurz (1974:333) appe a r s t y p i c a l . He assumes t h a t " i n the absence o f any reward o r l o s s due t o the r e v e l a t i o n o f t r u e p r e f e r e n c e s , i n d i v i d u a l s have the i n t r i n s i c d e s i r e t o t e l l t h e t r u t h and t hus [are] p r e p a r e d t o r e v e a l t h e i r t r u e demands." The comment h i n t s a t both i n f o r m a t i o n a l b i a s e s , which do c o n f e r rewards and l o s s e s , and c o g n i t i v e b i a s e s , which may r e s u l t i n an i n a b i l i t y t o t e l l o r even know the t r u t h d e s - p i t e a s i n c e r e d e s i r e t o t h e c o n t r a r y . But as l o n g as p e o p l e a r e assumed t o have w e l l - f o r m e d p r e f e r e n c e s and a d e s i r e t o r e v e a l them, the i m p l i e d p r e s - l o n g as t h e c o n t e x t and l e v e l o f a v a i l a b l e i n f o r m a t i o n remain the same. In t h e c a s e o f a h y p o t h e t i c a l q u e s t i o n r e g a r d i n g t h e v a l u e o f a p u b l i c good, t h e y argue t h a t v e r b a l e x p r e s s i o n s o f p r e f e r e n c e r e f e r t o o n l y one p o i n t i n t i m e , and t h a t i f a d d i t i o n a l i n f o r m a t i o n l a t e r becomes a v a i l a b l e i t i s t o be e x p e c t e d t h a t b e h a v i o r a l c h o i c e s might be a l t e r e d ( B l a n k ejt aJL , 1978). 61 c r i p t i o n i s t h a t t h e a t t e n t i o n o f e c o n o m i s t s can p r o p e r l y c e n t r e on such f a c t o r s as i m p r o v i n g t h e i n s t r u m e n t s used i n d a t a c o l l e c t i o n and r e v i s i n g the t r a i n i n g programs f o r e n u m e r a t o r s . S e v e r a l o t h e r a s p e c t s r e l a t e d t o the h y p o t h e t i c a l n a t u r e o f s u r v e y s i t u a t i o n s a r e b r i e f l y noted and w i l l be d i s c u s s e d i n more d e t a i l i n l a t e r s e c t i o n s . Most i m p o r t a n t l y , t h e more h y p o t h e t i c a l - - o r l e s s f a m i l i a r - - i s a s i t u a t i o n , t h e more d i f f i c u l t i t g e n e r a l l y i s f o r i n d i v i d u a l s t o f o r m u l a t e a c l e a r s e n s e o f t h e i r own p r e f e r e n c e s . H y p o t h e t i c a l i t y i s a l s o a c o n c e r n i n t h e p e r c e p t i o n o f payment mechanisms, as i s d e m o n s t r a t e d by both t h e "endow- ment e f f e c t " arid t h e " r e a l exchange" e f f e c t . The f i r s t term r e f e r s t o the d i f f e r e n t i m p o r t a n c e which i s c o n s c i o u s l y a t t a c h e d t o f o r e g o n e income g a i n s and t o o u t - o f - p o c k e t l o s s e s , a r e f l e c t i o n o f t h e f a c t t h a t consumers c o n s i s - t e n t l y u n d e r w e i g h t the i m p o r t a n c e o f o p p o r t u n i t y c o s t s r e l a t i v e t o a c t u a l ( r e a l i z e d ) c o s t s ( T h a l e r , 1980). The second b e h a v i o r r e f e r s t o a c l o s e l y r e l a t e d phenomena whereby h y p o t h e t i c a l exchanges may be v a l u e d d i f f e r e n t l y from r e a l ( i n g e n e r a l , c a s h ) exchanges. The i m p l i c a t i o n o f both e f f e c t s i s t h a t p e o p l e tend t o v a l u e goods i n t h e i r p o s s e s s i o n more h i g h l y than e q u a l l y - c o s t l y goods which a r e not and a ppear more w i l l i n g t o spend " o p p o r t u n i t y c o s t " than " r e a l i z e d " incomes. Both e f f e c t s a r e c o n s i s t e n t w i t h t h e S-shaped v a l u e f u n c t i o n s u g g e s t e d by p r o s p e c t t h e o r y , which s e r v e s t o h i g h l i g h t a f i n a l a s p e c t o f h y p o t h e t i c a l b e h a v i o r . As t h e p r e c e d i n g d i s c u s s i o n has s u g g e s t e d , a r e c u r r e n t c o n c e r n f o r t h o s e a s k i n g h y p o t h e t i c a l q u e s t i o n s i s t h a t i t may prove i m p o s s i b l e (a c o g - n i t i v e problem) o r not worth the time and e f f o r t (a m o t i v a t i o n a l problem) f o r t h e s u b j e c t t o r e a l l y imagine the s p e c i f i c f u t u r e consequences under examina- t i o n . P r o s p e c t t h e o r y ' s e x p l i c i t r e c o g n i t i o n o f p r o c e s s v a r i a b l e s r a i s e s the p o s s i b i l i t y t h a t n o t o n l y m i ght i n d i v i d u a l s n o t know whether t h e y w i l l l i k e what t h e y have asked f o r when i t a r r i v e s (a dilemma f a m i l i a r t o w a i t e r s 62 around t h e w o r l d ) , e i t h e r because o f new i n f o r m a t i o n o b t a i n e d i n the i n t e r i m o r because o f a s h i f t i n p r e f e r e n c e s , b u t a l s o t h a t t h e a c t o f e x p r e s s i n g a p a r t i c u l a r p r e f e r e n c e and l i v i n g w i t h the p s y c h i c consequences may i n i t s e l f h e l p t o d e f i n e a p e r s o n ' s t r u e v a l u e s . In t h i s s e n s e , t h e e c o n o m i s t s ' r e p l y t h a t h y p o t h e t i c a l q u e s t i o n s w i l l y i e l d b i a s e d answers because an i n d i v i d u a l " i n c u r s no a c t u a l u t i l i t y l o s s f o r an i n a c c u r a t e r e s p o n s e " (Freeman, 1979:97) i s o f t e n i n c o r r e c t . Once p r o c e s s v a r i a b l e s a r e b r o u g h t i n t o the p i c t u r e , not o n l y might the p s y c h i c c o s t s a s s o c i a t e d w i t h a change i n s t a t u s be s i g n i f i c a n t but a l a r g e number o f o t h e r b e h a v i o r a l c o n s i d e r a t i o n s may be i n t i m a t e l y l i n k e d t o the e x p r e s s i o n o f r e v e a l e d p r e f e r e n c e . For many p e r s o n s , p r e s e n t r e s p o n s e s c o n c e r n i n g hypothe- t i c a l o p t i o n s may be s t r a t e g i c a l l y managed so as t o m o d i f y f u t u r e p r e f e r e n c e s o r t o h e l p the i n d i v i d u a l C d i s c o v e r > what h i s o r h e r t r u e v a l u e s r e a l l y a r e , o r t h e y may r e p r e s e n t s h o r t - t e r m g o a l s which c o n f l i c t w i t h l o n g e r - t e r m ob- j e c t i v e s . Perhaps o n l y the most s i m p l e minded o r the most s o p h i s t i c a t e d o f s u b j e c t s would be s u f f i c i e n t l y c o n f i d e n t o f t h e i r s e l f - k n o w l e d g e t o c o n s i d e r any s i n g l e h o n e s t s t a t e m e n t o f v a l u e as r e p r e s e n t i n g a comprehensive e x p r e s - s i o n o f t h e i r p r e f e r e n c e s . C o g n i t i v e B i a s e s C o g n i t i v e b i a s e s a r e u n i n t e n t i o n a l d i s t o r t i o n s o f t r u e p r e f e r e n c e s which r e s u l t f r o m l i m i t a t i o n s i n an i n d i v i d u a l ' s a b i l i t y t o p e r c e i v e , p r o c e s s , and e v a l u a t e u n c e r t a i n o r u n f a m i l i a r i n f o r m a t i o n . These l i m i t a t i o n s t e n d t o be p e r v a s i v e ( t h a t i s , s h a r e d by both l a y p e r s o n s and e x p e r t s ) , r e s i s t a n t t o change ( t h a t i s , do not d i s a p p e a r when known) and s y s t e m a t i c ( r a t h e r t h a n random). The i n f l u e n c e o f c o g n i t i v e b i a s e s i s more e x t e n s i v e when r e q u i s i t e e v a l u a t i o n t a s k s a r e complex and r e q u i r e h i g h l y s p e c i a l i z e d i n t e l l e c t u a l and p e r c e p t u a l equipment. These c h a r a c t e r i s t i c s g e n e r a l l y e x i s t i n the e v a l u a - t i o n o f e n v i r o n m e n t a l goods and a c t i v i t i e s , s i n c e both the i d e n t i f i c a t i o n and 63 v a l u a t i o n o f p r e f e r e n c e s w i l l i n most c a s e s i n v o l v e r e f e r e n c e t o u n c e r t a i n c o n d i t i o n s o r e v e n t s , t h e a s s e s s m e n t o f i n f o r m a t i o n o f l i m i t e d v a l i d i t y and t h e w e i g h i n g o f competing o r incommensurate f a c t o r s . E a r l y models o f p r e f e r e n c e f o r m a t i o n tended t o view p e o p l e as v e r i d i - c a l o b s e r v e r s and competent i n t u i t i v e s t a t i s t i c i a n s who c o u l d s u c c e s s f u l l y s e l e c t and e v a l u a t e i n f o r m a t i o n o b t a i n e d from t h e i r e n v i r o n m e n t t o form r e p r e - s e n t a t i v e c h o i c e s ( P e t e r s e n and Beach, 1967). In r e c e n t y e a r s , however, t h i s p i c t u r e has been s u b j e c t e d t o i n c r e a s i n g c r i t i c i s m : n o r m a t i v e l y a p p r o p r i a t e d e c i s i o n s t r a t e g i e s , i t a p p e a r s , may be u n d e r u t i l i z e d and as a r e s u l t man's i n f e r e n t i a l c a p a b i l i t i e s may prove i n a d e q u a t e f o r some o f the c o g n i t i v e t a s k s a t hand ( N i s b e t t and Ross, 1980). In p a r t i c u l a r , i t a p p e a r s t h a t we seek t o r e d u c e t h e c o m p l e x i t y o f t h e t a s k s i n v o l v e d i n a s s e s s i n g p r o b a b i l i t i e s and e s t a b l i s h i n g v a l u e s by r e l y i n g i n s t e a d on a number o f more p r i m i t i v e j u d g e - mental h e u r i s t i c s . As s t r e s s e d i n the i n f l u e n t i a l s t u d i e s o f T v e r s k y and Kahneman (1974; 1981), t h e employment o f h e u r i s t i c p r i n c i p l e s i s g e n e r a l l y e f f i c i e n t , o f t e n u s e f u l , and f r e q u e n t l y n e c e s s a r y , but a t the same time can be r e s p o n s i b l e f o r t h e i n t r o d u c t i o n o f s i g n i f i c a n t and s y s t e m a t i c b i a s . F i v e major p o t e n t i a l s o u r c e s o f c o g n i t i v e b i a s , which r e l a t e t o the l i m i t e d a b i l i t y o f an i n d i v i d u a l t o a c c u r a t e l y p r o c e s s u n f a m i l i a r o r u n c e r t a i n i n f o r m a t i o n and employ i t t o i n f o r m h i m s e l f and o t h e r s o f h i s t r u e p r e f e r - e n c e s , w i l l be n o t e d i n t h i s s e c t i o n . R e p r e s e n t a t i v e b i a s . In making d e c i s i o n s o f c a u s a t i o n ( w i l l A g e n e r a t e B?) o r r e l a t i o n ( i s A p a r t o f B ? ) , Kahneman and T v e r s k y (1974) have h y p o t h e s i z e d t h a t i n d i v i d u a l s t e n d t o examine e s s e n t i a l f e a t u r e s o f A and B and e v a l u a t e t h e d e g r e e o f s i m i l a r i t y between them. I f B i s r e p r e s e n t a t i v e o f A, i t s p r o b a b i l i t y o f o c c u r r e n c e i s t h e n j u d g e d t o be h i g h . The r e p r e s e n t a t i v e n e s s b i a s t e n d s t o v i o l a t e p r i n c i p l e s o f r a t i o n a l i t y i n t h a t i t e n c o u r a g e s (a) t h e n e g l e c t o f p r i o r p r o b a b i l i t i e s ( i n c o n t r a s t t o the d e s c r i p t i o n g i v e n by 64 Bayes 1 r u l e ) ; (b) an i n s e n s i t i v i t y t o sample s i z e and ( c ) o v e r - c o n f i d e n c e i n t h e g e n e r a l a p p l i c a b i l i t y o f r e s u l t s from s m a l l samples; (d) an e x c e s s o f t r u s t i n p r e d i c t i o n s based on r e d u n d a n t , o r n o n - i n d e p e n d e n t , i n p u t v a r i a b l e s ( t h a t i s , e x h i b i t i n g m u l t i - c o l l i n e a r i t y ) ; and (e) an i n s e n s i t i v i t y toward the o c c u r r e n c e o f r e g r e s s i v e b e h a v i o r (so t h a t p r e d i c t i o n s f a i l t o r e f l e c t a p r o p e r c o n s i d e r a t i o n f o r mean v a l u e s ) . R e p r e s e n t a t i v e b i a s e s i n c o r p o r a t e both t h e well-known gambler's f a l l a c y ( " i f i t happened l a s t t ime i t s h o u l d n ' t happen next t i m e " ) and t h e d r a m a t i c a l l y t i t l e d "fundamental a t t r i b u t i o n e r r o r " (by which the r o l e o f p e r s o n a l d i s p o s i t i o n s i s o v e r - w e i g h t e d r e l a t i v e t o s i t u a t i o n a l i n f l u e n c e s ) and r a i s e s u b s t a n t i v e q u e s t i o n s about o u r a b i l i t y t o f u n c t i o n as v e r i d i c a l o b s e r v e r s o r r a t i o n a l e v a l u a t o r s o f s u r p r i s e o r chance e v e n t s . A v a i l a b i l i t y b i a s . S t a t i s t i c a l n o t i o n s o f f r e q u e n c y and p r o b a b i l i t y a r e r e - f l e c t e d i n t h e ease w i t h which e v e n t s can be r e c a l l e d , but so t o o a r e a number o f more s u b t l e s u b j e c t i v e f a c t o r s such as r e c e n c y , f a m i l i a r i t y , imag- i n a b i l i t y , and s a l i e n c e . These f a c t o r s , which t e n d t o v a r y s i g n i f i c a n t l y among i n d i v i d u a l s , can be s u b j e c t e d t o e i t h e r u n c o n s c i o u s o r i n t e n t i o n a l m a n i p u l a t i o n by the media (which tends t o emphasize c e r t a i n c l a s s e s o f e v e n t s ) o r t h e s p e c i f i c w o r d i n g o f a s u r v e y q u e s t i o n . The n o t i o n o f a v a i l a b i l i t y has been w i d e l y a p p l i e d i n the a n a l y s i s o f d i s t o r t i o n s which o c c u r i n the p e r c e p t i o n o f n a t u r a l h a z a r d s ( K a t e s , 1977), where i n d i v i d u a l s t e n d t o r e l y h e a v i l y on e x p e r i e n c e and t o view t h e f u t u r e as a f a i t h f u l m i r r o r o f the p e r - c e i v e d p a s t . A n c h o r i n g b i a s . A d j u s t m e n t s from an i n i t i a l v a l u e t e n d t o be both i m p r e c i s e and i n s u f f i c i e n t ; as a r e s u l t , s u b s e q u e n t p e r c e p t i o n s and v a l u a t i o n s t e n d t o be s t r o n g l y i n f l u e n c e d by, o r a n c h o r e d i n , f i r s t i m p r e s s i o n s . The e x i s t e n c e 65 o f t h i s b i a s t e n d s t o (a) encourage t h e f o r m a t i o n o f o v e r l y narrow c o n f i d e n c e i n t e r v a l s and l e a d s t o e x c e s s o p t i m i s m i n (b) e s t i m a t i n g the p r o b a b i l i t y o f what a r e p e r c e i v e d as c o n j u n c t i v e events, ( f o r example, t h e s u c c e s s f u l comple- t i o n o f a m i t i g a t i o n p r o j e c t ) o r ( c ) u n d e r s t a n d i n g the l i k e l i h o o d o f d i s j u n c - t i v e e v e n t s ( f o r example, the c u m u l a t i v e p r o b a b i l i t y o f f a i l u r e f o r a complex enhancement p l a n ) . The u n i n t e n t i o n a l a s p e c t o f t h i s b i a s means t h a t we may m i s r e p r e s e n t o u r t r u e p r e f e r e n c e s even though we have made a s i n c e r e a t t e m p t t o overcome t h e a n t i c i p a t e d i n f l u e n c e o f a p a r t i c u l a r s t a r t i n g p o i n t o r i n i t i a l a s s u m p t i o n : both o u r s e l v e s and o u r p l a n s , the b i a s s u g g e s t s , may be l e s s a d a p t i v e than we hope. O v e r c o n f i d e n c e b i a s . In a s e n s e , each form o f c o g n i t i v e b i a s p r e s e n t s a p o t e n t i a l s o u r c e o f o v e r c o n f i d e n c e r e g a r d i n g o u r a b i l i t y t o p e r c e i v e and e v a l u a t e i n f o r m a t i o n . However, f o u r s o u r c e s o f o v e r c o n f i d e n c e m e r i t s p e c i a l a t t e n t i o n i n t h e c o n t e x t o f e x p r e s s e d p r e f e r e n c e measures o f v a l u e . The f i r s t a r i s e s i n t h e e v a l u a t i o n o f u n f a m i l i a r o r l a b i l e v a l u e s , where an i n d i v i d u a l may f e e l c o m p e l l e d t o q u i c k l y r e s p o n d t o an i n t e r v i e w e r ' s q u e s t i o n ( r a t h e r t h a n admit h i s i g n o r a n c e o f t h e s u b j e c t o r h i s g e n u i n e l a c k o f a w e l l - d e f i n e d a t t i t u d e ) and t h e r e a f t e r remains committed t o m a i n t a i n i n g t h a t p o s i t i o n , even though t h i s i n v o l v e s t h e s u p p r e s s i o n o f o t h e r i n c o n s i s t e n t o r competing views. A r e l a t e d a s p e c t o f o v e r c o n f i d e n c e b i a s e s l e a d s t o the o u t s p o k e n d e n i a l o f u n c e r t a i n t y ("earthquakes don't happen he r e " ) so t h a t an u n c e r t a i n o r u n f a m i l - i a r a c t i v i t y may come to be viewed as p e r f e c t l y known and s a f e . A t h i r d s o u r c e i n v o l v e s t h e u n d e r w e i g h t i n g o f outcomes t h a t a r e p r o b a b l e i n c o m p a r i - son w i t h t h o s e o b t a i n e d w i t h c e r t a i n t y . T h i s t e n d e n c y , termed t h e " c e r t a i n t y e f f e c t , " i s f a m i l i a r from t h e p r e v i o u s d i s c u s s i o n o f p r o s p e c t t h e o r y where i t was shown t o c o n t r i b u t e t o both the well-known b e h a v i o r o f r i s k a v e r s i o n i n c h o i c e s which i n v o l v e c e r t a i n g a i n s and t h e s u r p r i s i n g but p a r a l l e l p r e s e n c e 66 o f r i s k s e e k i n g i n c h o i c e s i n v o l v i n g c e r t a i n l o s s e s . F i n a l l y , F i s c h h o f f (1977) and o t h e r s have found t h a t , once t o l d t h a t an e v e n t has o c c u r r e d , i n d i v i d u a l s t e n d t o b e l i e v e ( w i t h o u t r e a l i z i n g i t ) t h a t t h e y "knew i t would o c c u r " a l l a l o n g . Not o n l y can h i n d s i g h t b i a s e s a f f e c t the e v a l u a t i o n o f d e c i s i o n s which have been made i n t h e p a s t by e m p h a s i z i n g a sense o f " c o g n i - t i v e c o n c e i t " (Dawes, 1976) but t h e y may encourage an unwarranted sense o f o p t i m i s m c o n c e r n i n g p r e d i c t i v e and f o r e c a s t i n g a b i l i t i e s . Such o v e r c o n f i d e n c e can o f c o u r s e o n l y be m a i n t a i n e d i f (a) e n v i r o n m e n t a l f e e d b a c k i s n o t s t r u c - t u r e d so as t o d e m o n s t r a t e , o r p u n i s h us f o r , e r r o r s (which i n p a r t e x p l a i n s why weather f o r e c a s t e r s a r e g e n e r a l l y f a i r l y a c c u r a t e ) , o r (b) we a r e a b l e t o n e u t r a l i z e o r o t h e r w i s e i g n o r e incoming i n f o r m a t i o n ( f o r example, t h r o u g h employment o f the h i n d s i g h t b i a s ) . C o n t e x t u a l b i a s . A number o f c o g n i t i v e b i a s e s combine t o emphasize the s i g n i f i c a n c e o f c o n t e x t i n the p e r c e p t i o n and e v a l u a t i o n o f non-market goods. The s e q u e n t i a l a n a l y s i s o f a l t e r n a t i v e s , f o r example, has been found t o r e s u l t i n a v a l u a t i o n d i f f e r e n t from t h e i r s i m u l t a n e o u s p r e s e n t a t i o n ( T v e r s k y , 1969). S i m i l a r l y , an i n d i v i d u a l ' s w i l l i n g n e s s t o t a k e on r i s k s a p p e a r s t o be h i g h e r when a p r o s p e c t i s viewed as b e l o n g i n g t o a c l a s s o f problems r a t h e r than as an i s o l a t e d o r u n i q u e e v e n t . In a more g e n e r a l s e n s e , d e c i s i o n s may d i f f e r d r a m a t i c a l l y i f a problem i s viewed as one r e q u i r i n g a judgement (on i n d i v i d - u a l o p t i o n s ) o r a c h o i c e ( s e l e c t i n g from two o r more o p t i o n s ) ( S l o v i c e t a l . , 1981). These c o n s i d e r a t i o n s s u g g e s t t h a t so o b v i o u s a f a c t o r as the o r d e r i n which i n f o r m a t i o n i s p r e s e n t e d may s i g n i f i c a n t l y a f f e c t the e s t i m a t i o n o f p r e f e r e n c e s . The common p r a c t i c e o f o v e r l o a d i n g a d e c i s i o n maker w i t h e x t r a n e - ous i n f o r m a t i o n may s i m i l a r l y s e r v e o n l y t o e n s u r e c o n f u s i o n and a c o n s e q u e n t l y i n a c c u r a t e v a l u a t i o n o f p r e f e r e n c e s . A second s o u r c e o f c o n t e x t u a l b i a s a r i s e s f r o m the u n c o n s c i o u s t e n - 67 dency o f i n d i v i d u a l s t o s i m p l i f y c h o i c e s among a l t e r n a t i v e s by d i s r e g a r d i n g s h a r e d t r a i t s and f o c u s s i n g i n s t e a d on d i s t i n g u i s h i n g c h a r a c t e r i s t i c s . T h i s phenomena, which Kahneman and T v e r s k y (1974) have termed the " i s o l a t i o n e f f e c t , " can l e a d t o i n c o n s i s t e n t p r e f e r e n c e s when d i f f e r e n t a s p e c t s o f a c h o i c e a r e emphasized; f o r example, t h e same i s s u e may be viewed i n a sub- s t a n t i a l l y d i f f e r e n t l i g h t by a government b u r e a u c r a c y which sees the problem as one o f many and t h e l o c a l c i t i z e n r y which view the c i r c u m s t a n c e s as u n i q u e . T h i s a s p e c t o f c o n t e x t u a l b i a s i s r e l a t e d t o a s o r t o f Gresham's Law o f i n f o r m a t i o n , by which v a l u e s which a r e b e t t e r known o r measured i n terms o f e a s i l y commensurate i n d i c a t o r s ( f o r example, d o l l a r s ) a r e g r a n t e d p r e f e r e n t i a l t r e a t m e n t o v e r " s o f t e r " o r l e s s f a m i l i a r v a l u e s . A t h i r d f o r m o f c o n t e x t u a l b i a s s u g g e s t s t h a t an i n d i v i d u a l may s t a t e a p r e f e r e n c e f o r one a c t i v i t y ( f o r example, a good gamble) but v a l u e a n o t h e r more h i g h l y ( f o r example, one which has a l a r g e w i n n i n g p a y o f f ) , as i f d i f f e r e n t ( i n c o m p a t i b l e ) c o g n i t i v e s t r a t e - g i e s were used f o r t h e two a c t i v i t i e s o f s e t t i n g p r i c e s and making c h o i c e s ( L i c h t e n s t e i n and S l o v i c , 1971). D e b i a s i n g S t r a t e g i e s The s i g n i f i c a n c e o f m o t i v a t i o n a l and c o g n i t i v e b i a s e s i n the measure- ment o f e x p r e s s e d v a l u e s remains a m a t t e r o f some d e b a t e . On the one hand, a number o f p s y c h o l o g i s t s and d e c i s i o n a n a l y s t s have s t r o n g l y emphasized the r o l e o f n o n - m o t i v a t i o n a l s o u r c e s o f e r r o r i n judgemental t a s k s . N i s b e t t and Ross (1980:12), f o r example, warn t h e r e a d e r o f t h e i r r e c e n t t e x t t h a t "We p r o c e e d from t h e w o r k i n g h y p o t h e s i s t h a t i n f e r e n t i a l and judgemental e r r o r s a r i s e p r i m a r i l y f r o m n o n - m o t i v a t i o n a l - - p e r c e p t u a l and c o g n i t i v e — s o u r c e s . Such e r r o r s , we c o n t e n d , a r e a l m o s t i n e v i t a b l e p r o d u c t s o f human i n f o r m a t i o n - p r o c e s s i n g s t r a t e g i e s . " O t h e r s , such as S l o v i c , F i s c h h o f f and L i c h t e n s t e i n , s t r e s s " . . . t h e s t r o n g e f f e c t s o f f r a m i n g and i n f o r m a t i o n - p r o c e s s i n g c o n s i d e r a - 68 t i o n s " and argue t h a t i n many c a s e s "the method becomes the message." ( S l o v i c e t a l _ . , f o r t h c o m i n g ) . In t h e economics 1 i t e r a t u r e - - f o r example, as p a r t o f the e x t e n s i v e a e s t h e t i c v a l u a t i o n s t u d i e s o f Rowe, d'Arge and B r o o k s h i r e ( 1 9 8 0 ) - - d i s c u s s i o n s o f b i a s have emphasized m o t i v a t i o n a l r a t h e r than c o g n i t i v e i n f l u e n c e s and g e n e r a l l y f a i l t o d i s t i n g u i s h between t he two s o u r c e s . F o l l o w i n g n o r m a t i v e p r e s c r i p t i o n s , d e b i a s i n g p r o c e d u r e s a r e g e n e r a l l y based on the assumption o f a r a t i o n a l r e s p o n d e n t who seeks t o maximize a c l e a r l y d e f i n e d p e r s o n a l u t i l i t y f u n c t i o n by em p l o y i n g m o d e r a t e l y complex s t a t i s t i c a l r e a s o n i n g . F u r - t h e r m o r e , t h i s i n d i v i d u a l i s assumed t o be e d u c a b l e and hence r e s p o n s i v e t o c o r r e c t i v e i n f o r m a t i o n which i s g i v e n c o n c e r n i n g p o t e n t i a l : s o u r c e s . o f b i a s . A comparison o f b e f o r e and a f t e r r e s p o n s e s s h o u l d t h e r e f o r e , t h e y r e a s o n , s e r v e t o i d e n t i f y t h e magnitude o f b i a s e s which a r e p r e s e n t . T h i s c o n c e p t i o n o f p r e f e r e n c e f o r m a t i o n and r e v e l a t i o n i s s u b s t a n - t i a l l y d i f f e r e n t from one which r e c o g n i z e s both m o t i v a t i o n a l and c o g n i t i v e , s o u r c e s o f b i a s and which views d e v i a t i o n s from r a t i o n a l o r - s t a t i s t i c a l l y a p p r o p r i a t e judgements as b e i n g s y s t e m a t i c ( r a t h e r than m e r e l y c o n f u s e d ) and w i d e s p r e a d ( r a t h e r than t h e p r o d u c t o f i n d i v i d u a l c a r e l e s s n e s s ) , sometimes u s e f u l and a p p r o p r i a t e ( r a t h e r than n e c e s s a r i l y "wrong") and h i g h l y r e s i s t a n t t o change ( o r r e - e d u c a t i o n ) . Nor i s i t s u r p r i s i n g t h a t approaches which acknowledge t he i n f l u e n c e o f both s o u r c e s o f b i a s y i e l d s u b s t a n t i a l l y d i f - f e r e n t c o r r e c t i v e p r e s c r i p t i o n s which g e n e r a l l y "attempt t o r e t a i n what i s most v a l i d i n the i n t u i t i v e p r o c e s s w h i l e c o r r e c t i n g some e r r o r s t o which i t i s p r o n e . " (Kahneman and T v e r s k y , 1979b:314). In p a r t i c u l a r , t h e s u r v e y i n s t r u m e n t s s u g g e s t e d by such s t u d i e s ' r e f l e c t an i n c r e a s e d emphasis on t h e - i d e n t i f i c a t i o n o f s i t u a t i o n s where a n t i - i n t u i t i v e s t a t i s t i c a l t h i n k i n g would be h e l p f u l s i n c e t h e usu a l d e c i s i o n s o f 6 9 a normal i n d i v i d u a l may p r o ve t o be m i s l e a d i n g . F i s c h h o f f ( f o r t h c o m i n g ) , f o r example, c a t e g o r i z e s d e b i a s i n g p r o c e d u r e s a c c o r d i n g t o whether the sub- j e c t , t h e t a s k , o r t h e r e l a t i o n between them i s t o be h e l d r e s p o n s i b l e f o r t h e j udgemental e r r o r s under c o n s i d e r a t i o n . W hile t r a d i t i o n a l s u r v e y methods e n v i s a g e n e u t r a l i n t e r v i e w e r s who m i n i m i z e t h e i r i n t e r a c t i o n s w i t h r e p r e s e n - t a t i v e r e s p o n d e n t s , a r e c o g n i t i o n o f c o g n i t i v e and m o t i v a t i o n a l b i a s e s s u g g e s t s t h a t p r e f e r r e d e L i c i t a t i o n methods can p o i n t o u t i m p l i c a t i o n s o f r e s p o n s e s , d i s c u s s how the r e s u l t s o b t a i n e d r e l a t e t o t h o s e o f s i m i l a r s t u d i e s o r r e f e r e n c e g r o u p s , and o f f e r a l t e r n a t i v e p e r s p e c t i v e s f o r v i e w i n g the p r o b - lem ( F i s c h h o f f e t a l _ . , 1980). I n c r e a s e d a t t e n t i o n s h o u l d a l s o be p a i d t o t h e s p e c i f i c w o r d i n g and t i m i n g o f q u e s t i o n s , t h e o r d e r and manner i n which q u e s t i o n s a r e p r e s e n t e d , and t h e c o g n i t i v e c a p a b i l i t i e s i m p l i c i t l y assumed o f r e s p o n d e n t s by s u r v e y p r o c e d u r e s . A more g e n e r a l p o i n t i s t h a t s t u d i e s o f b i a s need t o p r o c e e d i n p a r a l l e l w i t h an a n a l y s i s o f t h e i r r o b u s t n e s s and s i g n i f i c a n c e ( t o a v o i d the l a b e l o f c o n t r i v e d e x p e r i m e n t a t i o n ) and s h o u l d h e l p p o i n t t h e way t o p o s s i b l e d e b i a s i n g i n i t i a t i v e s . F i s c h h o f f ' s ( f o r t h c o m i n g ) c l e v e r a s s e r t i o n t h a t "the s t u d y o f b i a s e s c l a r i f i e s t h e s o u r c e s and l i m i t s o f a p p a r e n t wisdom, j u s t as t h e s t u d y o f d e b i a s i n g c l a r i f i e s t h e s o u r c e s and l i m i t s o f a p p a r e n t f o l l y " s e r v e s t o emphasize t h a t t h e development o f an e f f e c t i v e d e b i a s i n g e f f o r t r e q u i r e s i n s i g h t s from both d i r e c t i o n s . I t i s hoped t h a t the e x p e r i m e n t a t i o n and s u b s e q u e n t a n a l y s i s o f the p r e s e n t s t u d y w i l l p r o v e f a i t h f u l t o t h i s r e m i n d e r . 70 CHARTER V RESEARCH DESIGN AND SURVEY PROCEDURES T h i s c h a p t e r o u t l i n e s t h e key problem a r e a s f o r which e m p i r i c a l d a t a has been o b t a i n e d , p r e s e n t s t h e d e s i g n o f t h e e x p e r i m e n t a l t e s t s and b r i e f l y r e v i e w s t h e i m p l e m e n t a t i o n p r o c e d u r e s which were employed. Each o f t h e s e t h r e e s u b j e c t s w i l l be c o n s i d e r e d i n t u r n . SELECTED PROBLEM AREAS The d i s c u s s i o n o f the p r e c e d i n g c h a p t e r s has attempted t o c r i t i c a l l y r e v i e w some o f t h e major c o n s i d e r a t i o n s which a r i s e when e s t i m a t i n g t he v a l u e o f non-market goods on the b a s i s o f i n d i v i d u a l s ' e x p r e s s e d p r e f e r e n c e s . The m a j o r i t y o f t h e s e c o n c e r n s owe t h e i r c o n t i n u e d e x i s t e n c e t o t h e r e l a t i v e l y s m a l l base o f c a r e f u l e m p i r i c a l s t u d i e s which have been c o n d u c t e d : as a r e s u l t , a v a i l a b l e i n f o r m a t i o n i s i n many c a s e s s c a n t y , i n a p p r o p r i a t e , o r c o n t r a d i c t o r y , and l e a v e s t h e a n a l y s t l i t t l e c l o s e r t o t h e knowledge o f an a c c u r a t e method f o r e s t i m a t i n g non-market v a l u e s . I have s e l e c t e d s i x problem a r e a s t o s e r v e as the f o c u s o f my e m p i r i c a l r e s e a r c h . I t has n o t proved " p o s s i b l e t o group t h e s e c o n c e r n s on t h e b a s i s o f any t i d y d i f f e r e n t i a t i o n : each problem i n v o l v e s both c o n c e p t u a l and m e t h o d o l o g i c a l c o n s i d e r a t i o n s and no c o n c e r n can be viewed i n i s o l a t i o n . I n s t e a d , each o f the s e l e c t e d t o p i c s r e f l e c t s a d e c i s i o n which must be made i n t h e c o u r s e o f d e s i g n i n g a s u r v e y o f non-market v a l u e s and i n t e r p r e t i n g t h e r e s p o n s e s which a r e o b t a i n e d . In each c a s e , t h e q u e s t i o n s which i n t e r e s t me a r e ones o f d i f f e r e n c e and d e g r e e : f o r example, i s the c h o i c e between 71 p u r c h a s e and c o m p e n s a t i o n measures o f v a l u e , d i f f e r e n t s t a r t i n g p o i n t s o r d i f f e r e n t q u e s t i o n wordings l i k e l y t o s i g n i f i c a n t l y a f f e c t t he magnitude o f s u r v e y r e s u l t s , and i f so what a r e the i m p l i c a t i o n s f o r s u r v e y d e s i g n ? In no c a s e was s u f f i c i e n t e v i d e n c e o b t a i n e d t o s u p p o r t t h e e x i s t e n c e o f one r i g h t a p p r o a c h , but such a q u e s t i s w e l l beyond t h e p r e s e n t s t a t e o f t h e a r t . S i n c e t h e e x i s t i n g l i t e r a t u r e on each t o p i c i s i n c o n c l u s i v e , what appear s t o be most needed i s a d d i t i o n a l e x p e r i m e n t a l d a t a on s p e c i f i c c on- c e p t u a l and t e c h n i c a l c o n c e r n s r a t h e r t h a n f i n a l judgements o r c o n c l u s i v e t h e o r i e s . In many r e s p e c t s , t h e methodology used i n t h e v a l u a t i o n o f non- market goods i s s t i l l s e a r c h i n g n o t f o r answers but f o r a p p r o p r i a t e q u e s t i o n s . F o r each o f t h e f o l l o w i n g s i x problem a r e a s I am t h e r e f o r e p r i m a r i l y i n t e r e s t e d i n o b t a i n i n g a d d i t i o n a l e m p i r i c a l e v i d e n c e r e g a r d i n g the i m p o r t a n c e o f each c o n c e r n i n the d e s i g n o f n o n - m a r k e t - s u r v e y s . D i f f e r e n c e s i n Payment and  Compensation Measures o f V a l u e A fundamental c h o i c e must be made between t h e competing measures o f v a l u e r e p r e s e n t e d by an i n d i v i d u a l ' s w i l l i n g n e s s t o pay t o r e t a i n o r o b t a i n a good o r t o e n j o y an e x p e r i e n c e and h i s o r h e r w i l l i n g n e s s t o a c c e p t compen- s a t i o n t o r e l i n q u i s h o r f o r e g o t h e same good o r a c t i v i t y . While e c o n o m i s t s have t r a d i t i o n a l l y a r g u e d t h a t d i f f e r e n c e s i n the a p p r o a c h e s w i l l be i n s i g - n i f i c a n t , r e c e n t e m p i r i c a l e v i d e n c e s u g g e s t s t h a t under c e r t a i n c o n d i t i o n s t h e v a r i a t i o n s may be s u b s t a n t i a l . C e n t r a l t o t h i s s t u d y i s t h e c a s e o f non- market e n v i r o n m e n t a l goods, f o r which I i n v e s t i g a t e t h e magnitude o f o b s e r v e d d i f f e r e n c e s i n consumer's s u r p l u s based on payment and compensation measures o f ..expressed v a l u e s . Comparison o f A l t e r n a t i v e  H y p o t h e t i c a l Measures T h r e e major s u r v e y a p p r o a c h e s have been used t o e s t i m a t e the v a l u e o f 72 non-market goods. The c l o s e d - e n d e d o r a l l - o r - n o n e a p p roach asks p a r t i c i p a n t s t o r e s p o n d a f f i r m a t i v e l y o r n e g a t i v e l y t o a s p e c i f i e d monetary payment w i t h t h e l e v e l v a r i e d a c r o s s i n d i v i d u a l s . The open-ended a p p r o a c h asks r e s p o n d e n t s t o s t a t e t h e maximum (minimum) amount t h e y a r e w i l l i n g t o pay ( w i l l i n g t o a c c e p t ) t o p u r c h a s e o r r e t a i n ( f o r e g o ) a good o r a c t i v i t y . The b i d d i n g game o r a u c t i o n a p p r o a c h p r o c e e d s i n s u c c e s s i v e i n c r e m e n t s u n t i l a maximum bu y i n g o r minimum s e l l i n g p r i c e i s a s c e r t a i n e d . A l t h o u g h each o f t h e t h r e e measures has been employed t o e s t i m a t e t h e v a l u e o f non-market goods, no s y s t e m a t i c c o m p a r i s o n has y e t been made. I a t t e m p t t o do t h i s f o r both t he w i l l i n g n e s s t o pay and t h e comp e n s a t i o n demanded a l t e r n a t i v e s . Comparison o f H y p o t h e t i c a l  and A c t u a l Responses Both e c o n o m i s t s and p s y c h o l o g i s t s have advanced t h e argument t h a t h y p o t h e t i c a l measures o f p r e f e r e n c e w i l l bear l i t t l e resemblance t o a c t u a l consumer b e h a v i o r . I f t h i s i s t r u e , t h e r e s u l t s o f a c o n t i n g e n t v a l u a t i o n s u r v e y would f u r n i s h an u n r e l i a b l e base f o r t h e e s t a b l i s h m e n t o f p u b l i c p o l i c y . In t h e s e t e s t s I compare a c t u a l and h y p t h e t i c a l r e s p o n s e s t o b i d d i n g game and c l o s e d - e n d e d f o r m a t s o f both t h e payment and comp e n s a t i o n v a l u a t i o n a l t e r n a t i v e s . I n f l u e n c e o f Framing E f f e c t s Common sense s u g g e s t s t h a t changes i n t h e way i n which v a l u a t i o n q u e s t i o n s a r e asked may a l t e r an i n d i v i d u a l ' s r e s p o n s e . As t h e t r a n s a c t i o n becomes l e s s f a m i l i a r o r t h e c o n t e x t more complex, i t i s e x p e c t e d t h a t t h e i n f l u e n c e o f f r a m i n g e f f e c t s m i ght i n c r e a s e . In t h e s e t e s t s I ask whether a number o f s l i g h t m a n i p u l a t i o n s i n the p h r a s i n g o f t h e s u r v e y q u e s t i o n might e x e r t a s u b s t a n t i a l i n f l u e n c e on s u r v e y r e s u l t s : f o r t h e p a r t i c u l a r changes which a r e i n v e s t i g a t e d , most p r e c e d i n g s t u d i e s as w e l l as t h e i m p l i c a t i o n s o f 73 u t i l i t y t h e o r y s u g g e s t t h a t / i t h e . d i f f e r e n c e s s h o u l d not prove to be s - i g n ' i f i - " c a n t . I n f l u e n c e o f A n c h o r i n g B i a s e s P r e v i o u s s t u d i e s which v a l u e non-market goods d i s a g r e e as t o whether t h e p a r t i c u l a r v a l u e s which a r e s e l e c t e d as t h e s t a r t i n g p o i n t o f a b i d d i n g game o r c l o s e d - e n d e d v a l u a t i o n p r o c e d u r e w i l l s i g n i f i c a n t l y a f f e c t the mag- n i t u d e o f e s t i m a t e d a v e r a g e payment o r c o m p e n s a t i o n p r i c e s . S e v e r a l t e s t s have t h e r e f o r e been d e s i g n e d t o i n v e s t i g a t e t h e i n f l u e n c e and r o b u s t n e s s o f such a n c h o r i n g b i a s e s . I n f l u e n c e o f P r o c e s s V a r i a b l e s A l a r g e number o f p r o c e s s o r manner v a r i a b l e s have been advanced as b e i n g p o t e n t i a l l y s i g n i f i c a n t d e t e r m i n a n t s o f an i n d i v i d u a l ' s e x p r e s s e d p r e f e r e n c e s . In t h e c o n t e x t o f non-market e n v i r o n m e n t a l goods, both r e s p o n - s i b i l i t y c o s t s and t h e a v o i d a n c e o f r e g r e t a p p e a r t o be p a r t i c u l a r l y p o t e n t c o n t r i b u t o r s t o an i n d i v i d u a l ' s e x p r e s s e d v a l u a t i o n o f a good o r a c t i v i t y . V a r i a t i o n s i n t h e p e r c e i v e d r e s p o n s i b i l i t y p l a c e d on a r e s p o n d e n t o r i n h i s o r her p o t e n t i a l f o r f u t u r e r e g r e t might t h e r e f o r e be e x p e c t e d t o s i g n f i c a n t l y a l t e r t h e magnitude o f a s s o c i a t e d r e s p o n s e s , and c o u l d p r o v i d e a p a r t i a l e x p l a n a t i o n f o r o b s e r v e d d i f f e r e n c e s between e q u i v a l e n t and c ompensating v a r i a t i o n measures o f v a l u e . SURVEY INSTRUMENT CHARACTERISTICS Two d i f f e r e n t s e t s o f e x p e r i m e n t a l t e s t s have been d e v e l o p e d t o e x p l o r e t h e s e problem a r e a s . The f i r s t and l a r g e r group i n v e s t i g a t e the v a l u a t i o n o f non-market goods i n t h e c o n t e x t o f an i n d i v i d u a l ' s w i l l i n g n e s s t o make t r a d e - o f f s between d i f f e r e n t l e v e l s o f e n v i r o n m e n t a l q u a l i t y o r some 74 o t h e r good and monetary g a i n s o r l o s s e s . I n f o r m a t i o n r e l e v a n t t o a l l s i x problem a r e a s was o b t a i n e d from t h e r e s u l t s o f t h e s e s u r v e y s . A t o t a l o f f o r t y - t h r e e d i f f e r e n t t e s t q u e s t i o n s were run i n the s e r i e s , w i t h t he sample p o p u l a t i o n s i n each c a s e l a r g e l y composed o f u n d e r g r a d u a t e s t u d e n t s e n r o l l e d i n economics c l a s s e s a t the U n i v e r s i t y o f B r i t i s h Columbia. Sample s i z e s f o r t h i s f i r s t group o f t e s t s a v e r a g e d about f i f t y p e r s o n s . A second s e t o f t e s t s was a d m i n i s t e r e d t o a d u l t v i s i t o r s t o the P r o v i n c i a l Museum i n V i c t o r i a , B r i t i s h Columbia. These q u e s t i o n s were con- c e r n e d w i t h t h e v a l u a t i o n o f u n p r i c e d goods i n t h e c o n t e x t o f v i s i t o r ' s s t a t e d w i l l i n g n e s s t o pay f o r , o r w i l l i n g n e s s t o a c c e p t compensation i n r e t u r n f o r g i v i n g up, an o p p o r t u n i t y t o view t h e e x h i b i t s o f the Museum. Due to a number o f c o n t r a i n t s , i n f o r m a t i o n r e l e v a n t t o o n l y two problem a r e a s was o b t a i n e d from t he r e s u l t s o f t h e s e s u r v e y s . A t o t a l o f n i n e t e e n d i f f e r e n t t e s t s were c o n d u c t e d i n the s e r i e s , w i t h a v e r a g e sample s i z e s f o r each ex- p e r i m e n t o f about one hundred p e r s o n s . The t e s t q u e s t i o n s a d m i n i s t e r e d t o t h e U n i v e r i t y o f B r i t i s h Columbia s t u d e n t groups were d e s i g n e d t o be s e l f - e x p l a n a t o r y , s h o r t and easy t o com- prehend. In each c a s e an i n t r o d u c t o r y d e s c r i p t i o n o f g e n e r a l s t u d y o b j e c - t i v e s and r a t i o n a l e was f o l l o w e d by t h e v a l u a t i o n q u e s t i o n s , which i n a l l c a s e s but one r e q u i r e d o n l y a y e s o r no r e s p o n s e . The m a j o r i t y o f the s u r v e y s were c o n d u c t e d d u r i n g t h e months o f O c t o b e r and November, 1981. A randomly s e l e c t e d c r o s s - s e c t i o n o f the q u e s t i o n n a i r e s was passed o u t p r i o r t o t h e b e g i n n i n g o f a c l a s s s e s s i o n , w i t h each p a r t i c i p a n t r e c e i v i n g one form from each o f two n o n - i n t e r f e r i n g s e t s . S t u d e n t s were t o l d o n l y t h e name and s t a t u s o f t h e a d m i n i s t r a t o r ( i n a l l c a s e s m y s e l f ) and i n f o r m e d t h a t t h e i r p a r t i c i p a t i o n was wanted t o a s s i s t i n t h e c o m p l e t i o n o f a s t u d y b e i n g c o n d u c t e d t h r o u g h t he U n i v e r s i t y o f B r i t i s h Columbia. A t o t a l o f f i v e t o t e n 75 m i n u t e s was then a l l o t t e d f o r c o m p l e t i o n o f t h e q u e s t i o n n a i r e s . Once a l l forms had been c o l l e c t e d , a b r i e f e x p l a n a t i o n o f consumer's s u r p l u s measures was u s u a l l y g i v e n t o t h e c l a s s and i n some c a s e s a s h o r t d i s c u s s i o n f o l l o w e d . The P r o v i n c i a l Museum t e s t s were c a r r i e d o u t by f o u r t r a i n e d r e - s e a r c h e r s d u r i n g the months o f August t h r o u g h November, 1981. P e r s o n a l i n t e r - views were c o n d u c t e d u s i n g random s a m p l i n g p r o c e d u r e s ; t h e i n t e r v i e w s took p l a c e a t d i f f e r e n t t i m e s o f t h e day i n a number o f d i f f e r e n t l o c a t i o n s i n o r d e r t o o b t a i n a r e p r e s e n t a t i v e range o f r e s p o n d e n t s . Most q u e s t i o n n a i r e s were f i l l e d i n by the p a r t i c i p a n t s , a l t h o u g h i n some c a s e s the i n t e r v i e w e r wrote down t h e v e r b a l r e s p o n s e s o f s u b j e c t s . C l a r i f i c a t i o n o f the c o n c e p t s o r i n s t r u c t i o n s was p r o v i d e d o n l y upon r e q u e s t i n o r d e r t o m i n i m i z e t h e i n f l u - ence o f i n f o r m a t i o n b i a s e s . A l l i n t e r v i e w s w i t h Museum v i s i t o r s were c a r r i e d o u t a t t h e s i t e , w h i l e s e p a r a t e q u e s t i o n s were asked o f n o n - v i s i t o r s a t a second V i c t o r i a s i t e , i n Vancouver, and i n two o t h e r B r i t i s h Columbian c i t i e s ( N e l s o n and C h i l l i w a c k ) . A l l v e r s i o n s o f the t e s t s were ke p t s h o r t (one page o n l y ) , w i t h an i n t r o d u c t o r y d e s c r i p t i o n o f Museum s e r v i c e s and s e l e c t i v e s t u d y o b j e c t i v e s f o l l o w e d by t h r e e t o f i v e q u e s t i o n s . A l l but one o f t h e s e r e q u i r e d o n l y a y e s o r no r e s p o n s e , w i t h t h e e x c e p t i o n b e i n g an open-ended q u e s t i o n d e s i g n e d t o e l i c i t more g e n e r a l comments. V i s i t o r s t o t h e Museum were q u e s t i o n e d both b e f o r e b e g i n n i n g and a f t e r c o m p l e t i n g t o u r s o f the e x h i b i t s i n o r d e r t o see i f a c o n s i s t e n t d i f f e r e n c e i n b e t w e e n - s u b j e c t r e s p o n s e s was o b t a i n e d . In some c a s e s , t h e i n t e r v i e w e r a l s o o r a l l y i n q u i r e d (and s u b s e q u e n t l y noted) whether t h e r e s p o n d e n t had p r e v i o u s l y v i s i t e d t he Museum, and one group o f t o u r i s t s was asked t h e i r i n t e n d e d l e n g t h o f s t a y i n V i c t o r i a . 76 SELECTION OF SURVEY QUESTIONS T h i s s e c t i o n b r i e f l y d e s c r i b e s t h e key f e a t u r e s o f the t e s t q u e s t i o n s used i n both t h e U n i v e r s i t y o f B r i t i s h Columbia and P r o v i n c i a l Museum s e t s o f e x p e r i m e n t s . A d d i t i o n a l i n f o r m a t i o n i s g i v e n i n t h e subsequent c h a p t e r , which p r e s e n t s an a n a l y s i s o f s u r v e y r e s u l t s . A complete s e t o f q u e s t i o n - n a i r e s i s i n c l u d e d as p a r t o f t h e - A p p e n d i x . S u r v e y s Conducted a t the  U n i v e r s i t y o f B r i t i s h Columbia The U n i v e r s i t y o f B r i t i s h Columbia s u r v e y s can be d i v i d e d i n t o t h r e e g e n e r a l g r o u p s . A f i r s t s e t o f twenty forms asked i n d i v i d u a l s ' w i l l i n g n e s s t o pay f o r , o r w i l l i n g n e s s t o s e l l t h e i r r i g h t t o , d i f f e r e n t l e v e l s o f e n v i r o n - mental q u a l i t y . In each c a s e , an i n t r o d u c t o r y p a r a g r a p h f i r s t d e s c r i b e d t h e l i n k between i n d u s t r i a l growth and d e c l i n i n g a i r q u a l i t y and emphasized t h a t p r o t e c t i o n o f t h e envi r o n m e n t c o s t s money. T h i s same i n i t i a l d e s c r i p t i o n was i n c l u d e d f o r a l l s u r v e y s i n t h e group. The w i l l i n g n e s s t o pay q u e s t i o n s next d e s c r i b e d t h e h y p o t h e t i c a l e x i s t e n c e o f a s p e c i a l e n v i r o n m e n t a l q u a l i t y t a x which would r e q u i r e a l l s t u d e n t s and o t h e r l o c a l r e s i d e n t s t o pay equal amounts i n o r d e r t o p r e v e n t a d e c l i n e i n ave r a g e a i r q u a l i t y l e v e l s o r t o m a i n t a i n p r e s e n t a r e a a i r q u a l i t y s t a n d a r d s . The w i l l i n g n e s s t o s e l l ques- t i o n s s u g g e s t e d t h a t a w i l l i n g n e s s t o a l l o w d e c l i n e s i n l o c a l a i r q u a l i t y c o u l d r e s u l t i n d e c r e a s e s i n P r o v i n c i a l t a x e s f o r a l l a r e a r e s i d e n t s o r e q u i v a l e n t annual c ompensation payments. T h i s i n f o r m a t i o n was e x t e n s i v e l y p r e - t e s t e d and i n t e r v i e w s showed t h a t t h e frameworks which were employed a p p e a r e d b e l i e v a b l e and were r e a d i l y u n d e r s t o o d by most s t u d e n t s . Two i n t r o d u c t o r y q u e s t i o n s o f g e n e r a l i n t e r e s t f o l l o w e d t h e i n i t i a l d e s c r i p t i o n , p r i m a r i l y as a means o f g e t t i n g t h e s t u d e n t s i n v o l v e d i n answer- i n g s u r v e y q u e s t i o n s . A t h i r d q u e s t i o n , o f p r i m a r y s i g n i f i c a n c e t o s t u d y 77 o b j e c t i v e s , then asked f o r i n f o r m a t i o n r e g a r d i n g the i n d i v i d u a l ' s w i l l i n g n e s s t o pay f o r h i g h e r l e v e l s , o r w i l l i n g n e s s t o a c c e p t l o w e r l e v e l s , o f e n v i r o n - mental q u a l i t y . F i v e v e r s i o n s o f t h i s q u e s t i o n were employed: 1. A f i r s t p r o posed a $10.00 payment and, depending on t h e answer, s u b s e q u e n t l y p r e s e n t e d e i t h e r $25.00 o r $5.00; 2. A second v e r s i o n f o l l o w e d t h i s same form but v a r i e d the amount o f monetary payment; 3. A t h i r d f o r m a t asked t h e maximum (minimum) amount t h a t p e o p l e were w i l l i n g t o pay ( w i l l i n g t o a c c e p t ) ; 4. A f o u r t h p r o v i d e d a frame o f r e f e r e n c e by p r e c e d i n g the payment q u e s t i o n w i t h a s h o r t l i s t o f t h e a v e r a g e annual e x p e n d i t u r e s made by P r o v i n c i a l r e s i d e n t s f o r a number o f o t h e r t y p e s o f goods and s e r v i c e s ; and 5. A f i n a l v e r s i o n asked t h a t e i t h e r c u r r e n t o r d e s i r e d payments f o r e n v i r o n m e n t a l q u a l i t y be ranked r e l a t i v e t o a number o f o t h e r e x p e n d i t u r e c l a i m s . A second s e t o f seven forms u t i l i z e d an a v e r s i v e n e s s s c a l e d e v e l o p e d by Kahneman and T v e r s k y t o e x p l o r e t h e r o l e o f r e s p o n s i b i l i t y c o s t s and , r e g r e t i n the v a l u a t i o n o f non-market goods. S u b j e c t s were asked t o s c o r e t h e a v e r s i v e n e s s o f t e n d i f f e r e n t u n p l e a s a n t e v e n t s on a s c a l e o f 0 t o 20, r e l a t i v e t o an i n v a r i a n t r e f e r e n c e e v e n t which was a s s i g n e d a s c o r e o f 10. Two v e r s i o n s o f the q u e s t i o n compared t h e a v e r s i v e n e s s o f e n v i r o n m e n t a l deg- r a d a t i o n — i n one c a s e a d e c l i n e i n e n v i r o n m e n t a l q u a l i t y , i n t h e o t h e r t h e p o t e n t i a l e x t i n c t i o n o f s e v e r a l r a r e s p e c i e s o f mammals--in a h y p o t h e t i c a l s i t u a t i o n where t h e i n d i v i d u a l was i n p a r t t o blame and i n one where he o r she was n o t . A t h i r d v e r s i o n l o o k e d a t the i n f l u e n c e o f s u r v e y d e s i g n on r e s p o n s i b i l i t y c o s t s by comparing t h e e f f e c t s o f p r i o r h y p o t h e t i c a l t e l e p h o n e and i n - p e r s o n c o n t a c t s w i t h s u r v e y p a r t i c i p a n t s . 78 A t h i r d s e t o f s i x t e e n forms compared i n d i v i d u a l s ' r e s p o n s e s t o t h e t h r e e major a l t e r n a t i v e v e r s i o n s o f h y p o t h e t i c a l q u e s t i o n s f o r both t h e pay- ment and co m p e n s a t i o n a p p r o a c h e s . In each c a s e an i n t r o d u c t o r y p a r a g r a p h d e s c r i b e d s t u d y o b j e c t i v e s and e s t a b l i s h e d t h e g e n e r a l c o n t e x t w i t h i n which t h e good o r e x p e r i e n c e c o u l d be p u r c h a s e d o r s o l d . The same s e r i e s o f t e n e v e n t s o r a c t i v i t i e s was then p r e s e n t e d t o a l l r e s p o n d e n t s . Of t h e e i g h t pay- ment and compensation v e r s i o n s , two q u e s t i o n n a i r e s asked f o r the p a r t i c i p a n t ' s r e s p o n s e t o an open-ended q u e s t i o n , f o u r forms p r e s e n t e d a l l - o r - n o n e payment a l t e r n a t i v e s and two forms i n v o l v e d t h e s u b j e c t i n a b i d d i n g game u s i n g d i f f e r e n t i n c r e m e n t s . In a d d i t i o n , one o f t h e t e n q u e s t i o n s was chosen so as t o f a c i l i t a t e a s e p a r a t e c omparison o f p a r t i c i p a n t s ' r e s p o n s e s t o h y p o t h e t i c a l and t o a c t u a l o f f e r s o f monetary payment o r compensation. S u r v e y s Conducted a t the  P r o v i n c i a l Museum The s u r v e y s d e v e l o p e d f o r use a t t h e P r o v i n c i a l Museum a r e o f t h r e e g e n e r a l t y p e s . A f i r s t s e t o f t w e l v e forms p r e s e n t e d an i n t r o d u c t o r y des- c r i p t i o n o f Museum s e r v i c e s and a b r i e f i n t r o d u c t i o n t o t h e r a t i o n a l e f o r u s i n g w i l l i n g n e s s t o pay as a measure o f economic v a l u e . F o l l o w i n g t h r e e s h o r t i n t r o d u c t o r y q u e s t i o n s , d e s i g n e d t o p r o v i d e b a s i c i n f o r m a t i o n r e g a r d i n g r e s p o n d e n t s ' p l a c e o f r e s i d e n c e and l e n g t h o f s t a y i n V i c t o r i a , t h e q u e s t i o n - n a i r e s e i t h e r asked v i s i t o r s ' w i l l i n g n e s s t o pay an e n t r a n c e f e e t o v i s i t t h e Museum o r asked t h e maximum annual p r o v i n c i a l t a x payment t h a t t h e y would be w i l l i n g t o pay t o e n s u r e t h e q u a l i t y o f Museum e x h i b i t s . In some c a s e s t h e e n t r a n c e f e e s which must be p a i d t o v i s i t a number o f o t h e r r e g i o n a l o r i n t e r - n a t i o n a l e x h i b i t s were a l s o shown i n o r d e r t o t e s t t h e i n f l u e n c e o f v a r y i n g frames o f r e f e r e n c e on v i s i t o r s ' e x p r e s s e d p r e f e r e n c e s . A l l v e r s i o n s ( e x c e p t , o f c o u r s e , open-ended o p t i o n s ) were p r e s e n t e d u s i n g payments o f d i f f e r i n g 79 amounts .as a t e s t f o r a n c h o r i n g b i a s e s , and c o n c l u d e d w i t h a g e n e r a l q u e s t i o n d e s i g n e d t o e l i c i t b r o a d - r a n g i n g o r a l r e s p o n s e s c o n c e r n i n g t he r o l e o r d u t i e s o f t h e Museum. A second s e t o f t h r e e q u e s t i o n n a i r e s was d e s i g n e d t o e s t i m a t e t he amount o f compensation t h a t would be r e q u i r e d i f the Museum were t o be c l o s e d o r t h e q u a l i t y o f Museum s e r v i c e s were a l l o w e d t o d e c l i n e . The ques- t i o n t h e r e f o r e assumes t h a t p r e s e n t u s e r s o f t h e Museum c o n s i d e r t h e i r r i g h t t o v i s i t t h e e x h i b i t s a p a r t o f t h e i r e n t i t l e m e n t as p r o v i n c i a l r e s i d e n t s and i m p l i e s t h a t t h e y c o u l d d e s e r v e compensation i f the e x p e r i e n c e were no l o n g e r a v a i l a b l e . F o l l o w i n g t h e same i n t r o d u c t o r y d e s c r i p t i o n , the i d e a was i n t r o - duced t h a t c l o s u r e o f the Museum o r a d e c l i n e i n i t s q u a l i t y c o u l d r e s u l t i n s u b s t a n t i a l f i n a n c i a l s a v i n g s f o r t h e P r o v i n c i a l Government. I n d i v i d u a l s were then a s k e d whether s p e c i f i e d monetary payments o r e q u i v a l e n t r e d u c t i o n s i n annual p r o v i n c i a l t a x e s would be a c c e p t e d as compensation f o r a c u r t a i l - ment i n t h e p r e s e n t l e v e l o f Museum s e r v i c e s . A f i n a l s e t o f f o u r forms was d e s i g n e d t o e s t i m a t e t he v a l u e o f the Museum t o p r o v i n c i a l r e s i d e n t s who were n o t a t p r e s e n t v i s i t i n g and who mi g h t n e v e r v i s i t i t s e x h i b i t s i n p e r s o n . A b r i e f d e s c r i p t i o n o f both Museum s e r - v i c e s and s u r v e y o b j e c t i v e s was f i r s t p r o v i d e d f o r p a r t i c i p a n t s , who were then asked i f t h e y would be w i l l i n g t o make an i n c r e m e n t a l t a x payment i n o r d e r t o p r e s e r v e t h e i r o p p o r t u n i t y t o v i s i t t h e Museum a t some f u t u r e time as w e l l as s i m p l y t o e n s u r e i t s c o n t i n u e d e x i s t e n c e . The f o u r v e r s i o n s p r e - s e n t e d t h r e e d i f f e r e n t l e v e l s o f payment as w e l l as an open-ended form o f t h e q u e s t i o n . 80 CHAPTER VI ANALYSIS OF SURVEY RESULTS T h i s c h a p t e r p r e s e n t s t h e f i n d i n g s o f the e x p e r i m e n t a l t e s t s f o r each o f t h e s i x problem a r e a s which have been o u t l i n e d i n t h e p r e v i o u s d i s c u s s i o n . Key r e s u l t s a r e p r e s e n t e d i n t a b u l a r form and s t a t i s t i c a l t e s t s o f the s i g n i - f i c a n c e o f s u r v e y r e s p o n s e s a r e i n c l u d e d where a p p r o p r i a t e . The q u e s t i o n - n a i r e s used i n each c o m p a r a t i v e t e s t a r e i d e n t i f i e d by t h e i r numbers, which r e f e r t o t h e complete l i s t i n g o f s u r v e y t e s t s i n c l u d e d as p a r t o f t h e Appendix. Each o f t h e problem a r e a s i s r e v i e w e d i n t u r n , w h i l e the d i s c u s s i o n o f C h a p t e r VII w i l l examine the r e l a t i o n between t h e s e c o n c e r n s i n more d e t a i l and i n v e s t i g a t e some o f the b r o a d e r i m p l i c a t i o n s o f the r e s e a r c h r e s u l t s . DIFFERENCES IN PAYMENT AND COMPENSATION MEASURES OF VALUE The e m p i r i c a l i n f o r m a t i o n which has been c o l l e c t e d f i r m l y s u p p o r t s t h e h y p o t h e s i s t h a t s u b s t a n t i a l l y more compensation w i l l be demanded t o r e l i n q u i s h a good o r t o f o r e g o i t s use than would u s u a l l y be p a i d t o r e t a i n o r t o o b t a i n t h e same good. Ten o f t h e f o u r t e e n comparisons o f s e l l i n g and payment a l t e r - n a t i v e s which w i l l be examined a r e s i g n i f i c a n t l y d i f f e r e n t a t the 5 p e r c e n t l e v e l o f c o n f i d e n c e on the b a s i s o f a C h i - S q u a r e t e s t and i n a l l c a s e s meas- ur e s o f compensation demanded exceed i n d i v i d u a l s ' w i l l i n g n e s s t o pay f o r a good. The e x p e r i m e n t a l e v i d e n c e t h e r e f o r e s t r o n g l y s u p p o r t s the c o n t e n t i o n t h a t e x p r e s s e d p r e f e r e n c e v a l u a t i o n s o f non-market commodities and a c t i v i t i e s w i l l g e n e r a l l y v a r y w i t h an i n d i v i d u a l ' s p e r c e p t i o n o f h i s o r h e r e n t i t l e m e n t t o o r o w n e r s h i p o f t h e good under c o n s i d e r a t i o n . 81 T h i s s e c t i o n p r e s e n t s the i n f o r m a t i o n o b t a i n e d i n r e s p o n s e t o hypo- t h e t i c a l q u e s t i o n s . E a r l i e r examples, d i s c u s s e d i n C h a p t e r IV, i n c l u d e c o n t i n g e n t s u r v e y s which i n d i c a t e t h a t i n d i v i d u a l s w i l l f r e q u e n t l y r e q u i r e a s i g n i f i c a n t l y l a r g e r sum t o f o r e g o the use o f an e n v i r o n m e n t a l r e s o u r c e than t h e y would pay t o m a i n t a i n c u r r e n t a c c e s s r i g h t s . A d d i t i o n a l e x p e r i m e n t a l t e s t s , which compare payment and compensation measures o f v a l u e f o r a c t u a l t r a n s a c t i o n s i n v o l v i n g r e a l exchanges o f f u n d s , w i l l a l s o be d i s c u s s e d i n t h i s c h a p t e r . The t e s t s i t u a t i o n s were d e s i g n e d t o encourage p a r t i c i p a n t s t o r e s p o n d a c c u r a t e l y , and t h e s t a t e d d o l l a r amounts were s u f f i c i e n t l y s m a l l so as t o m i n i m i z e the i n f l u e n c e o f income o r w e a l t h e f f e c t s . In each c a s e o n l y one o p t i o n — a n o p p o r t u n i t y t o pay ( f o r example, f o r e n v i r o n m e n t a l q u a l i t y ) o r an o p p o r t u n i t y t o be compensated f o r t h e l o s s o f a g ood—was p r e s e n t e d t o each i n d i v i d u a l . D i s c u s s i o n s among p a r t i c i p a n t s were not a l l o w e d and no i n f o r m a - t i o n was g i v e n c o n c e r n i n g s u r v e y o b j e c t i v e s which might have i n f l u e n c e d r e s p o n s e s t o s u b s e q u e n t e x p e r i m e n t s . T e s t 1 ( Q u e s t i o n n a i r e s l a and 2a) A f i r s t e x p e r i m e n t compared t h e w r i t t e n r e s p o n s e s o f two groups o f s t u d e n t s t o one o f two h y p o t h e t i c a l q u e s t i o n s c o n c e r n i n g the v a l u e o f e n v i r o n - mental q u a l i t y . One q u e s t i o n asked the p a r t i c i p a n t s ' w i l l i n g n e s s t o pay an annual t a x o f $25.00 " i n o r d e r t o p r e v e n t a d e c l i n e i n a v e r a g e a i r q u a l i t y l e v e l s . " The a l t e r n a t i v e q u e s t i o n asked the p a r t i c i p a n t s ' w i l l i n g n e s s t o a c c e p t a d e c r e a s e i n annual t a x e s o f $25.00 i f as a r e s u l t average a i r q u a l i t y l e v e l s were t o d e c l i n e . The i n t r o d u c t o r y i n f o r m a t i o n p r e s e n t e d t o r e s p o n d e n t s was i d e n t i c a l , and both q u e s t i o n s were n o n - n e g o t i a b l e i n the sense o f r e q u i r - i n g s i m p l y a y e s o r no answer. In t h e absence o f s i g n i f i c a n t income o r w e a l t h e f f e c t s , and g i v e n a 82 random d i s t r i b u t i o n of. p r e f e r e n c e s t h r o u g h o u t t he sample p o p u l a t i o n , t he c o n v e n t i o n a l e x p e c t a t i o n i s t h a t t h e e x p r e s s e d v a l u e o f e n v i r o n m e n t a l q u a l i t y s h o u l d be c o n s i s t e n t between the two measures. I f i n d i v i d u a l s a r e w i l l i n g t o pay $25.00 o r more t o p r e v e n t a d e c l i n e i n a i r q u a l i t y , t h e y s h o u l d r e f u s e t o a c c e p t l e s s t h a n t h i s same amount o f compensation i n r e t u r n f o r g i v i n g up p r e s e n t c o n d i t i o n s . S i m i l a r l y , t he p e r c e n t a g e o f p e o p l e who a r e w i l l i n g t o a c c e p t $25.00 i n r e t u r n f o r l o w e r l e v e l s o f a i r q u a l i t y , and t h e r e b y i n d i c a t e t h a t i t s v a l u e t o them does n o t exceed t h i s sum, s h o u l d be equal t o the p e r - c e n t a g e which i s u n w i l l i n g t o pay more than $25.00 t o p r e v e n t a d e c l i n e i n a i r q u a l i t y . The r e s u l t s o f t h e e x p e r i m e n t do n o t conform t o t h i s e x p e c t a t i o n . W h i l e 73 p e r c e n t o f t h e p a r t i c i p a n t s (41 o f 56) i n d i c a t e d t h e i r w i l l i n g n e s s . t o pay $25.00 o r more t o p r e v e n t a d e c l i n e i n a i r q u a l i t y , f o r t y - e i g h t o f f i f t y - t w o r e s p o n d e n t s (92 p e r c e n t ) r e f u s e d t o a c c e p t l o w e r a i r q u a l i t y l e v e l s i n r e t u r n f o r $25.00 i n co m p e n s a t i o n . The f i f t e e n r e s p o n d e n t s who r e f u s e d t o pay t h i s amount e x p r e s s e d t h e i r u n w i11ingness t o g i v e up $25.00 t o p r e v e n t a d e c l i n e i n c u r r e n t a i r q u a l i t y l e v e l s , w h i l e t h e f o u r r e s p o n d e n t s who a c c e p t e d t h e o f f e r o f $25.00 i n compensation i n d i c a t e d t h e i r u n w i l l i n g n e s s t o make t h i s t r a d e . W i l l i n g t o pay $25 W i l l i n g t o a c c e p t $25 T o t a l x" = 6.65 V a l u e > $25 V a l u e < $25 T o t a l 41 ( y e s ) 15 (no) 56 48 (no) 4 ( y e s ) 52_ ( T e s t 1) 89 19 108 The p r o p o r t i o n o f r e s p o n d e n t s who v a l u e p r e s e n t a i r q u a l i t y c o n d i - t i o n s a t more than $25.00 i s s i g n i f i c a n t l y g r e a t e r when measured on the b a s i s 83 o f t h e i r r e f u s a l t o a c c e p t compensation than when measured on the b a s i s o f t h e i r w i l l i n g n e s s t o pay. U s i n g a C h i - S q u a r e t e s t and a two-by-two c o n t i n - gency t a b l e w i t h one Degree o f Freedom, the d i f f e r e n c e i s s t a t i s t i c a l l y s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . T h i s s u g g e s t s t h a t the c h o i c e o f e v a l u a - t i o n p r o c e d u r e s has a m a j o r impact on r e s p o n d e n t s ' e x p r e s s e d v a l u e s . T e s t s 2, 3, and 4 ( Q u e s t i o n n a i r e s l b  and 2b, 3a and 3c, 3b and 3d) The second t e s t i s i d e n t i c a l t o the f i r s t e x c e p t t h a t the o r d e r o f the c l a u s e s used i n t h e v a l u a t i o n q u e s t i o n i s r e v e r s e d : r a t h e r than a s k i n g i f p a r t i c i p a n t s would be w i l l i n g t o pay ( a c c e p t ) a s t a t e d sum t o p r e v e n t ( p e r m i t ) d e c l i n e s i n a i r q u a l i t y , the q u e s t i o n asks whether, i n o r d e r t o p r e v e n t a d e c l i n e , r e s p o n d e n t s would e i t h e r a g r e e t o pay a s p e c i f i e d amount o f money o r a c c e p t a n o n - n e g o t i a b l e o f f e r o f c o m p e n s a t i o n . T w e n t y - e i g h t o f the s e v e n t y - t h r e e p e r s o n s r e s p o n d i n g t o the payment o p t i o n d e c l i n e d t o pay $25.00, w h i l e o n l y f o u r t e e n o f t h e f i f t y - e i g h t s t u d e n t s who were o f f e r e d compensation s a i d t h e y would a c c e p t . V a l u e > $25 V a l u e < $25 T o t a l W i l l i n g t o pay $25 45 28 73 W i l l i n g t o a c c e p t $25 44 14 58 ( T e s t 2) T o t a l 89 42 131 x 2 = 3.01 These r e s u l t s a g a i n c o n t r a s t w i t h t h e e x p e c t a t i o n o f equal sample p r o - p o r t i o n s , but t h e argument i s now l e s s s t r o n g . S i x t y - t w o p e r c e n t o f p a r t i c i - • pants were w i l l i n g t o pay t h e s p e c i f i e d $25.00 sum compared t o 76 p e r c e n t who r e f u s e d t o a c c e p t $25.00 as compensation. However, the c a l c u l a t e d x o f 3.01 84 i s n o t s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . * The t h i r d and f o u r t h e x p e r i m e n t s a r e a g a i n s i m i l a r t o the f i r s t e x c e p t f o r t h e i n c o r p o r a t i o n o f one s e n t e n c e i n the i n t r o d u c t o r y d e s c r i p t i o n o f s u r v e y o b j e c t i v e s which i n f o r m s p a r t i c i p a n t s t h a t t h e y have been s e l e c t e d as p a r t o f e i t h e r a l a r g e o r s m a l l sample o f Vancouver a r e a r e s i d e n t s . I t was a n t i c i p a t e d t h a t t h i s a d d i t i o n , which emphasizes t h e r e s p o n s i b i l i t y c o s t s accompanying a p a r t i c i p a n t ' s d e c i s i o n , would i n c r e a s e t h e s i g n i f i c a n c e o f the d i s p a r i t y between payment and compensation measures o f v a l u e . The r e s u l t s o f the two t e s t s c o n f i r m t h i s e x p e c t a t i o n . In t e s t 3, n i n e t e e n o f t h i r t y - s e v e n r e s p o n d e n t s (58 p e r c e n t ) were w i l l i n g t o pay an annual t a x o f $25.00 t o p r e v e n t a d e c l i n e i n a v e r a g e a r e a a i r q u a l i t y l e v e l s w h i l e 81 p e r c e n t (26 o f 32) r e f u s e d t o a c c e p t $25.00 i n c o m p ensation. V a l u e > $25 V a l u e < $25 T o t a l W i l l i n g t o pay $25 19 14 33 W i l l i n g t o a c c e p t $25 __26 6 32_ ( T e s t 3) T o t a l 45 20 65 x 2 = 4.17 The r e s u l t s o f t e s t 4 show t h a t 37 p e r c e n t and 67 p e r c e n t o f r e s p o n - d e n t s v a l u e a i r q u a l i t y a t $25.00 o r more on t h e b a s i s o f payment and compen- 2 s a t i o n measures. With r e s p e c t i v e x v a l u e s o f 4.17 and 7.08, both s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l , t h e e x p e r i m e n t s s u g g e s t t h a t t h e v a l u e which p a r t i c i - p a n ts p l a c e on a i r q u a l i t y i s l o w e r when measured on the b a s i s o f t h e i r w i l l i n g n e s s t o pay t h a n when measured on t h e b a s i s o f t h e i r w i l l i n g n e s s t o a c c e p t equal amounts o f monetary compensation f o r i t s l o s s . The c r i t i c a l v a l u e f o r t h e C h i - S q u a r e d i s t r i b u t i o n w i t h 1 D.F. i s 3.84 a t t h e 5 p e r c e n t l e v e l and 2.71 a t t h e 10 p e r c e n t l e v e l . 85 V a l u e > $25 V a l u e < $25 T o t a l W i l l i n g t o pay $25 11 19 30 W i l l i n g t o a c c e p t $25 __36 18 54 ( T e s t 4) T o t a l 47 37 84 x 2 = 7.08 T e s t 5 ( Q u e s t i o n n a i r e s 4b and 2d) The f i f t h t e s t gave p a r t i c i p a n t s t h e c l o s e d - e n d e d o p t i o n o f p a y i n g o r r e c e i v i n g $200.00 t o e i t h e r p r e v e n t o r a l l o w a d e c l i n e i n a v e r a g e a r e a a i r q u a l i t y l e v e l s . A l t h o u g h t h e q u e s t i o n remains h y p o t h e t i c a l , i t was a n t i c i p a t e d t h a t t h e s u b s t a n t i a l l y l a r g e r sum i n v o l v e d would e l i c i t more e x a g g e r a t e d • b e h a v i o r on t h e p a r t o f s u r v e y r e s p o n d e n t s . I f t h e p a t t e r n o f t h e p r e v i o u s t e s t s s t i l l h o l d s , we would t h e r e f o r e e x p e c t t o see a h i g h l y s i g n i f i c a n t d i f f e r e n c e i n t h e r e s p o n s e s t o payment and t o compensation q u e s t i o n s . V a l u e > $200 V a l u e < $200 T o t a l W i l l i n g t o pay $200 9 21 30 W i l l i n g t o a c c e p t $200 24 14 38 ( T e s t 5) T o t a l 33 35 68 2 x c = 7.50 T h i s i s i n d e e d what i s f o u n d , w i t h o n l y 30 p e r c e n t o f r e s p o n d e n t s (9 o f 30) w i l l i n g t o pay $200 t o p r e v e n t a d e c l i n e i n a i r q u a l i t y l e v e l s and f u l l y 63 p e r c e n t o f t h o s e q u e s t i o n e d r e f u s i n g t o a c c e p t an i d e n t i c a l sum as com p e n s a t i o n . These r e s u l t s a r e s i g n i f i c a n t a t the 5 p e r c e n t l e v e l . The t e s t t h e r e f o r e p r e s e n t s s t r o n g e v i d e n c e t h a t t he two measures o f economic worth a r e n o t e q u i v a l e n t , and t h a t t h e c h o i c e o f measurement a p p r o a c h can i n f l u e n c e t h e f i n a l e s t i m a t e d v a l u e s . 86 T e s t s 6, 7, and 8 ( Q u e s t i o n n a i r e s 8b  and 9b, 8c and 9 c , 8d and 9d) These t h r e e t e s t s each compared one group o f p a r t i c i p a n t s ' w i l l i n g n e s s t o pay w i t h a n o t h e r ' s w i l l i n g n e s s t o a c c e p t compensation f o r a s e r i e s o f t e n e v e r y d a y goods and e x p e r i e n c e s . The i n t r o d u c t o r y i n f o r m a t i o n g i v e n t o both groups was s i m i l a r i n tone and o r g a n i z a t i o n b u t , o f c o u r s e , d i f f e r e d a c c o r d i n g t o whether i t d e s c r i b e d a c l o s e d - e n d e d o p t i o n t o p u r c h a s e a t i c k e t o r t o be compensated f o r i t s l o s s . T h r e e d i f f e r e n t d o l l a r amounts, r a n g i n g from $0.20 t o $1.00, were employed, w i t h t e s t 6 p r e s e n t i n g t h e l o w e s t sums and t e s t 8 the h i g h e s t . P a r t i c i p a n t s were i n s t r u c t e d t o i n d i c a t e , by c i r c l i n g e i t h e r y e s o r no, whether t h e y would a g r e e t o pay o r a c c e p t t h e s t a t e d amount. A l t h o u g h d i s p a r i t i e s i n s e l l i n g and b u y i n g b e h a v i o r were o b s e r v e d f o r a l l t e n i t e m s , t h e most i n f o r m a t i v e comparison ( f o r r e a s o n s which w i l l become c l e a r l a t e r on) c o n c e r n s t h e v a l u e s p l a c e d on a l o t t e r y t i c k e t which a f f o r d e d t h e s u b j e c t a one i n t h i r t y chance t o win an e l e c t r o n i c c a l c u l a t o r . A l t h o u g h a r e s p o n d e n t ' s p r e f e r e n c e o r a v e r s i o n f o r r i s k s w i l l o b v i o u s l y be r e f l e c t e d i n h i s o r her r e s p o n s e , t h e r e seems t o be no r e a s o n t o e x p e c t t h a t t h e i n f l u e n c e o f gambling o r chance b e h a v i o r w i l l be o t h e r than s y m e t r i c a l between the two measurement o p t i o n s . I n t e r e s t i n g l y , t h e d i f f e r e n c e i n payment and compensation measures o f v a l u e became more m e a n i n g f u l as t h e d o l l a r amount employed i n the e x p e r i m e n t s i n c r e a s e d . The r e s u l t s o f t h e h i g h e s t v a l u e t e s t d e m o n s t r a t e t h a t o n l y e i g h t o f t h i r t y p a r t i c i p a n t s (27 p e r c e n t ) i n d i c a t e d t h e i r w i l l i n g n e s s t o pay $1.00 t o p a r t i c i p a t e i n t h e l o t t e r y , w h i l e 50 p e r c e n t o f t h o s e q u e s t i o n e d (19 o f 38) r e f u s e d t o s e l l t h e i r e n t r y t i c k e t when o f f e r e d $1.00. However, t h i s d i f f e r - 2 ence p r o v i d e s an x o f 3.81, which i s n o t s t a t i s t i c a l l y s i g n i f i c a n t a t the 5 p e r c e n t l e v e l . T e s t s 6 and 7 p r e s e n t the r e s u l t s o b t a i n e d when t h e amount o f payment 87 o r compensation was d e c r e a s e d t o o n l y $0.20 o r $0.60. The i n s i g n i f i c a n t d i f f e r e n c e shown i n t e s t 6 c o u l d r e f l e c t t h e f a c t t h a t $0.20 i s a v e r y s m a l l amount f o r p e o p l e t o pay o r r e c e i v e and t h a t o t h e r c o n s i d e r a t i o n s , such as an i n d i v i d u a l ' s d e s i r e t o p a r t i c i p a t e i n t h e game o r im a g i n e d p e e r - g r o u p p r e s - s u r e s , a r e dominant. S u b s t a n t i a l d i f f e r e n c e s i n p a r t i c i p a n t s ' b e h a v i o r b e g i n t o show up a t t h e $0.60 l e v e l o f payment o r c o m p e n s a t i o n , w i t h o n l y 34 p e r c e n t o f r e s p o n d e n t s i n d i c a t i n g t h a t t h e t i c k e t was worth $0.60 i f t h e y had t o pay f o r i t compared t o t h e 52 p e r c e n t o f t h o s e g i v e n a t i c k e t who i n d i c a t e d t h a t i t was worth more than $0.60. However, the x v a l u e o f 3.10 i s a g a i n n o t s t a t i s t i c a l l y s i g n i f i c a n t a t a 5 p e r c e n t l e v e l . W i l l i n g t o pay $0.20 W i l l i n g t o a c c e p t $0.20 T o t a l W i l l i n g t o pay $0.60 W i l l i n g t o a c c e p t $0.60 T o t a l V a l u e > $0.20 V a l u e < $0.20 T o t a l 32 15 47 33 14 47 65 29 94 V a l u e > $0.60 V a l u e < $0.60 T o t a l 16 31 47 24 22 46 40 53 93 ( T e s t 6) x = .03 ( T e s t 7) yf- = 3.10 W i l l i n g t o pay $1.00 W i l l i n g t o a c c e p t $1.00 T o t a l V a l u e > $1.00 V a l u e < $1.00 T o t a l 8 22 30 19 19 38 27 41 68 ( T e s t 8) 3.81 88 The f i n d i n g t h a t more s i g n i f i c a n t r e s u l t s a p p e a r once h i g h e r v a l u e s a r e employed p r o b a b l y r e f l e c t s t h e f a c t t h a t p a r t i c i p a n t s have begun t o s e r i o u s l y e v a l u a t e the c h o i c e t h a t must be made: a t l o w e r v a l u e s , i t s i m p l y i s n ' t worth an i n d i v i d u a l ' s t i m e t o c o n s i d e r the proposed t r a n s a c t i o n . T h i s i n t e r p r e t a t i o n i s c o n s i s t e n t w i t h t h e r e s u l t s o f e a r l i e r e x p e r i m e n t s , where t h e s t a t i s t i c a l s i g n i f i c a n c e o f o b s e r v e d d i f f e r e n c e s i n the two measures o f v a l u e was i n c r e a s e d when l a r g e r amounts o f payment o r compensation ( f o r example, $25.00 r a t h e r than $10.00) were t e s t e d . Y e t t h i s does n o t r e a l l y p r o v i d e an answer f o r t h e v a r i a t i o n i n the two measures, s i n c e f o r the same r e a s o n t h a t i t i s l e s s a t t r a c t i v e t o pay $1.00 t h a n t o pay $0.20 i t has a l s o become more a t t r a c t i v e t o a c c e p t $1.00 i n compensation. Whether i n d i v i d u a l s c o n t e m p l a t e t h e c h o i c e a t hand s e r i o u s l y o r f l i p p a n t l y t e l l s us l i t t l e about t h e new b e h a v i o r a l mechanisms which have come i n t o p l a y . o C o n s i d e r a t i o n s such as t h e p r e v i o u s l y d i s c u s s e d endowment e f f e c t ( T h a l e r , 1980)--which s u g g e s t s t h a t i n d i v i d u a l s f r e q u e n t l y underweight " o p p o r t u n i t y c o s t s " r e l a t i v e t o a c t u a l ( r e a l i z e d ) c o s t s , and t h e r e f o r e r e q u i r e a b e t t e r o f f e r t o w i l l i n g l y g i v e up ( t h a t i s , p l a c e a h i g h e r v a l u e on) money o r goods c o n s i d e r e d p a r t o f t h e i r endowment then a s s e t s which a r e not--may c o n t r i b u t e t o an e x p l a n a t i o n o f t h e i n c r e a s i n g d i s p a r i t y . For example, an argument c o u l d be made t h a t o n l y w i t h sums o f $1.00 o r more ( i n t h i s c a s e ) do monetary v a l u e s become s u f f i c i e n t t o be m e a n i n g f u l l y i n c l u d e d as p a r t o f an i n d i v i d u a l ' s p e r c e i v e d endowment. However, t h e e x p l a n a t i o n remains p a r t i a l and a d d i t i o n a l e x p e r i m e n t s which seek t o add t o t h e r e a s o n s b e h i n d o b s e r v e d d i f f e r e n c e s i n b u y i n g and s e l l i n g b e h a v i o r w i l l be d e s c r i b e d l a t e r i n t h i s c h a p t e r . 89 T e s t 9 ( Q u e s t i o n n a i r e s 8a and 9a) T h i s t e s t p r e s e n t e d i n d i v i d u a l s w i t h t h e same s e t o f t e n e v e r y d a y goods and e x p e r i e n c e s , but t h i s t ime each p a r t i c i p a n t was g i v e n a c h o i c e o f f i v e d i f f e r e n t payment l e v e l s and asked t o i n d i c a t e e i t h e r t h e maximum amount o f money which t h e y would be w i l l i n g t o pay t o o b t a i n each good o r the minimum amount o f money which t h e y would be w i l l i n g t o a c c e p t as compensation f o r i t s l o s s . T h i s range o f v a l u e s was n o n - n e g o t i a b l e , so t h a t t h e e x p r e s s i o n o f h i g h e r o r l o w e r amounts than t h e s t a t e d e n d p o i n t s was not p e r m i t t e d . V a l u e s e x p r e s s e d f o r a l o t t e r y t i c k e t , w i t h t h e p r i z e o f an e l e c t r o n i c c a l c u l a t o r , w i l l a g a i n be r e p o r t e d . I f t h e method o f e v a l u a t i o n made no d i f f e r e n c e , the mean v a l u e p l a c e d on t h e t i c k e t s h o u l d be the same r e g a r d l e s s o f whether p a r t i c i p a n t s ' w i l l i n g - ness t o pay o r c o m p e n s a t i o n demanded i s used as t h e b a s i s o f t h e e v a l u a t i o n . However, the r e s u l t s o f t h i s e x p e r i m e n t add t o the e v i d e n c e t h a t the s e l e c - t i o n o f a measurement t e c h n i q u e can have a s u b s t a n t i a l impact on t h e e x p r e s s e d v a l u e o f t h e good o r e x p e r i e n c e under c o n s i d e r a t i o n . Of the f o r t y - n i n e p e o p l e asked t o pay f o r a t i c k e t , o n l y f i v e (10 p e r c e n t ) s a i d t h a t i t was worth more than $1.00 whereas t h i r t e e n o f t h e f o r t y - e i g h t p e r s o n s o f f e r e d c o m p e n s a t i o n (27 p e r c e n t ) i n d i c a t e d t h a t i t was worth a t l e a s t $1.00 t o them. 2 The r e s u l t i n g x o f 4.59 i s s i g n i f i c a n t ( w i t h one Degree o f Freedom) a t the 5 p e r c e n t l e v e l . V a l u e > $1.00 V a l u e < $1.00 T o t a l W i l l i n g t o pay $1.00 5 44 49 W i l l i n g t o a c c e p t $1.00 13 35 48 ( T e s t 9) T o t a l 18 79 97 x 2 = 4.59 90 T e s t 10 ( Q u e s t i o n n a i r e s 8g and 9g) T h i s t e s t a g a i n p r e s e n t e d p a r t i c i p a n t s w i t h a l i s t o f t e n a c t i v i t i e s o r goods and i n s t r u c t i o n s t h a t each i t e m s h o u l d be a s s i g n e d a v a l u e under e i t h e r a w i l l i n g n e s s t o pay o r a w i l l i n g n e s s t o s e l l e v a l u a t i o n framework. However, no d o l l a r amounts were shown and no e n d p o i n t s were s p e c i f i e d ; i n s t e a d , r e s p o n d e n t s were asked t o w r i t e i n t h e d o l l a r amount which b e s t i n d i c a t e d the worth o f each e x p e r i e n c e . The r e s u l t s o f t h i s open-ended e x p e r i m e n t p r o v i d e v e r y s t r o n g s u p p o r t t h a t a marked d i f f e r e n c e i n e x p r e s s e d v a l u e s w i l l emerge i f compensation r a t h e r t h a n payment p r i c e s a r e a s s i g n e d . In r e s p o n s e t o the same l o t t e r y q u e s t i o n which has been d i s c u s s e d p r e v i o u s l y , o n l y two o f t h i r t y - s e v e n r e s p o n - d e n t s ( 5 . p e r c e n t ) were w i l l i n g t o pay $1.00 o r more i n o r d e r t o o b t a i n a t i c k e t . On t h e o t h e r hand, s e v e n t e e n o f t h i r t y - s i x p e r s o n s (47 p e r c e n t ) asked t o s t a t e t h e minimum amount o f monetary compensation t h a t t h e y would a c c e p t i n r e t u r n f o r g i v i n g up a t i c k e t i n d i c a t e d t h a t i t s v a l u e exceeded $1.00. The 2 d i f f e r e n c e i n t h e s e r e t u r n s i s s t r i k i n g , , and t h e c a l c u l a t e d x o f 16.44 i s s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . V a l u e > $1.00 V a l u e < $1.00 T o t a l W i l l i n g t o pay $1.00 2 35 37 W i l l i n g t o a c c e p t $1.00 17 19 36_ ( T e s t 10) T o t a l 19 54 73 x 2 = 16.44 S e v e r a l r e a s o n s can be advanced t o e x p l a i n the o b s e r v e d d i s p a r i t y i n t h e open-ended t e s t . The l a c k o f g u i d a n c e i n a h y p o t h e t i c a l q u e s t i o n o f t h i s s o r t may l e a d t o a sense o f u n r e a l i t y on t h e p a r t o f many r e s p o n d e n t s , but i t i s n o t c l e a r why r e a c t i o n s t o o f f e r s o f c ompensation would be a f f e c t e d d i f f e r e n t l y t h a n p a r t i c i p a n t s ' w i l l i n g n e s s t o p u r c h a s e the l o t t e r y t i c k e t . Gaming e f f e c t s , however, might not prove t o be s y m e t r i c a l : t h e w i l l i n g n e s s t o pay q u e s t i o n may i n v o k e a r e s p o n d e n t ' s s p e c i f i c r e a c t i o n t o the p o s s i b i l i t y o f p u r c h a s i n g a c a l c u l a t o r , which many s t u d e n t s may a l r e a d y own and t h e r e f o r e v a l u e l e s s h i g h l y , w h i l e t h e w i l l i n g n e s s t o s e l l a l t e r n a t i v e may f o c u s a t t e n - t i o n on the more a t t r a c t i v e p r o s p e c t o f a low r i s k gamble. F u r t h e r m o r e , w h i l e e n d p o i n t s a r e not s p e c i f i e d o n l y t h e h i g h e r end o f t h e s c a l e i s t r u l y open s i n c e low e x p r e s s i o n s o f v a l u e a r e e f f e c t i v e l y bound by z e r o . Whatever t h e r e a s o n , t h e r e s u l t s c o n v i n c i n g l y d e m o n s t r a t e t h a t a sub- s t a n t i a l l y g r e a t e r p r o p o r t i o n o f t h o s e h o l d i n g t h e t i c k e t would r e f u s e t o t r a d e i t f o r an o f f e r o f $1.00 than would a g r e e t o buy i t a t t h a t p r i c e , w h i l e t h e r e l a t i v e magnitude o f t h e d i s p a r i t y a p p e a r s t o be e x a g g e r a t e d by the s e l e c t i o n o f an open-ended measurement a p p r o a c h . T h i s i n t e r p r e t a t i o n f o l l o w s even more s t r o n g l y from t h e r e s u l t s o f two o t h e r open-ended e x p e r i m e n t s , which compare t h e maximum annual t a x t h a t r e s p o n d e n t s would be w i l l i n g t o pay t o p r e v e n t a d e c l i n e i n a i r q u a l i t y l e v e l s w i t h t h e minimum t a x d e c r e a s e which would j u s t compensate them f o r t h e d e c l i n e . W h ile a l l twenty-one p e r s o n s who were asked the payment q u e s t i o n r e s - ponded, o n l y t h i r t e e n o f the f o r t y - s i x p a r t i c i p a n t s i n the s e l l i n g e x p e r i m e n t (28 p e r c e n t o f t h e sample) c h o s e , o r were a b l e , t o g i v e a s p e c i f i e d monetary v a l u e . F u r t h e r m o r e , t h e i r mean l e v e l o f compensation was n e a r l y $2,000,per p e r s o n compared t o o n l y $26.00 f o r t h e payment a l t e r n a t i v e . Twenty r e s p o n d e n t s (43 p e r c e n t ) r e f u s e d t o t r a d e c u r r e n t l e v e l s o f e n v i r o n m e n t a l q u a l i t y f o r any amount o f monetary c o m p e n s a t i o n , w h i l e t h e r e m a i n i n g t h i r t e e n p e r s o n s s i m p l y l e f t t h e q u e s t i o n b l a n k . C l e a r l y , t h e c h o i c e o f e v a l u a t i o n method p r o f o u n d l y a f f e c t e d r e s p o n d e n t s ' e x p r e s s e d v a l u e s . 92 T e s t s 11 and 12 ( Q u e s t i o n n a i r e s 8e  and 93, 8 f and 9 f ) These two t e s t s i n v e s t i g a t e whether t h e i n t r o d u c t i o n o f b i d d i n g b e h a v i o r w i l l a f f e c t the magnitude o f t h e d i s p a r i t y between p a r t i c i p a n t s ' w i l l i n g n e s s t o pay and t h e i r d e s i r e t o a c c e p t compensation f o r the same s e r i e s o f t e n f a m i l i a r goods and a c t i v i t i e s . Respondents were g i v e n a s t a r t i n g p r i c e f o r each i t e m and asked t o i n d i c a t e t h e v a l u e t h e y p l a c e d on i t by moving th r o u g h a s e r i e s o f s u c c e s s i v e mental b i d s , as would be used i n an a u c t i o n . The s t a r t i n g p r i c e used i n both t h e payment and t h e compensation q u e s t i o n s i s t h e r e f o r e viewed as a minimum v a l u e , and p a r t i c i p a n t s were asked t o i n c r e a s e t h i s i n i t i a l v a l u e by e i t h e r o f two s p e c i f i e d amounts (which v a r i e d w i t h each q u e s t i o n ) u n t i l a maximum p u r c h a s e p r i c e o r a minimum s e l l i n g p r i c e was r e a c h e d . The d i f f e r e n c e i n b i d d i n g i n c r e m e n t s s h o u l d n o t have proved s i g n i f i - c a n t i n t h e p r e s e n t c a s e , and t h e r e s u l t s o f both t e s t s v e r i f y t he e x p e c t a - t i o n — w h i c h a f t e r t h e p r e v i o u s t e n e x p e r i m e n t s s h o u l d no l o n g e r be s u r p r i s i n g - - t h a t t h e r e l a t i v e number o f p a r t i c i p a n t s v a l u i n g the l o t t e r y t i c k e t a t a s p e c i f i e d amount w i l l v a r y a c c o r d i n g t o whether the measure o f v a l u e i s based on t h e i r w i l l i n g n e s s t o p u r c h a s e i t o r t h e i r w i l l i n g n e s s t o a c c e p t an o f f e r o f c o m p e n s a t i o n . In t e s t 11, which employed a b i d d i n g i n c r e m e n t o f $0.20, 32 p e r c e n t o f r e s p o n d e n t s (10 o f 31) were w i l l i n g t o pay $1.00 o r more to p a r t i c i - p a t e i n t h e l o t t e r y w h i l e o n l y 41 p e r c e n t (15 o f 37) a c c e p t e d an o f f e r o f $1.00 i n compensation f o r g i v i n g up t h e i r t i c k e t . The x f o r t h i s t e s t was •5.04, which w i t h one D.F. i s s i g n i f i c a n t a t a 5 p e r c e n t l e v e l . With a b i d d i n g i n c r e m e n t o f $0.40, f o u r t e e n o f t h i r t y - f i v e r e s p o n d e n t s (40 p e r c e n t ) i n d i c a t e d t h a t p a r t i c i p a t i o n I n t h e l o t t e r y was worth a t l e a s t $1.00 t o them w h i l e t w e n t y - e i g h t o f t h e f o r t y - o n e p e r s o n s (71 p e r c e n t ) r e f u s e d 2 an o f f e r o f $1.00 i n t r a d e f o r t h e i r t i c k e t . The x o f 7.25 f o r t e s t 12, 93 c a l c u l a t e d from t h e r e s u l t i n g c o n t i n g e n c y t a b l e , i s a l s o s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . V a l u e > $1.00 V a l u e < $1.00 T o t a l W i l l i n g t o pay $1.00 W i l l i n g t o a c c e p t $1.00 T o t a l 10 22 21 15 31 37 32 36 68 ( T e s t 11) 5.04 W i l l i n g t o pay $1.00 W i l l i n g t o a c c e p t $1.00 T o t a l V a l u e > $1.00 V a l u e < $1.00 T o t a l 14 21 35 29 12 41 43 33 76 ( T e s t 12) )C = 7.25 T e s t s 13 and 14 ( Q u e s t i o n n a i r e s b.. and b., b.. and h.) ~ The f i n a l two t e s t s comparing i n d i v i d u a l s ' p u r c h a s e and s e l l i n g p r i c e s a r e drawn from t h e s u r v e y s which were c o n d u c t e d a t t h e B.C. P r o v i n c i a l Museum/ As d e s c r i b e d i n some d e t a i l i n t h e p r e c e d i n g c h a p t e r , t h e s e t e s t s compare r e s p o n d e n t s ' w r i t t e n o r v e r b a l r e s p o n s e s t o a s e r i e s o f q u e s t i o n s d e s i g n e d t o h e l p d e t e r m i n e t h e economic v a l u e o f a v i s i t t o the Museum. Both t h e s e l l i n g and payment a l t e r n a t i v e s p r e s e n t an i n t r o d u c t o r y d e s c r i p t i o n o f Museum s e r v i c e s and s u r v e y o b j e c t i v e s , and t h e n go on t o ask c u r r e n t v i s i t o r s i f t h e y would be w i l l i n g t o a c c e p t an annual t a x r e d u c t i o n o f $10.00 i n r e t u r n f o r e i t h e r a d e c l i n e i n t h e q u a l i t y o f Museum s e r v i c e s ( t e s t 13) o r c l o s u r e o f the Museum ( t e s t 14) o r i f t h e y would make an equal annual payment t o m a i n t a i n t h e q u a l i t y o f t h e e x h i b i t s . The r e s u l t s o f both a l l - o r - n o n e frameworks s t r o n g l y s u p p o r t t h e e v i - 94 dence o b t a i n e d i n t h e U n i v e r s i t y o f B r i t i s h Columbia e x p e r i m e n t s t h a t t he two measures f o r e s t i m a t i n g economic v a l u e s a r e s i g n i f i c a n t l y d i f f e r e n t . F o r t y - e i g h t p e r c e n t o f r e s p o n d e n t s (16 o f 33) were u n w i l l i n g t o pay a t a x o f $10.00 t o m a i n t a i n t h e p r e s e n t q u a l i t y o f Museum s e r v i c e s but o n l y 10 p e r c e n t o f v i s i t o r s (3 o f 30) would a g r e e t o a d e c l i n e i n Museum q u a l i t y i n r e t u r n f o r a p $10.00 annual t a x s a v i n g . With an x o f 10.88, t h e s e r e s u l t s a r e s i g n i f i c a n t a t a 5 p e r c e n t l e v e l and argue t h a t t h e two competing measures o f economic v a l u e a r e not e q u i v a l e n t . V a l u e > $10 V a l u e < $10 T o t a l W i l l i n g t o pay $10 17 16 33 W i l l i n g t o a c c e p t $10 27 3 30 ( T e s t 13) T o t a l 44 19 63 x 2 = 10.88 T e s t 14 compares t h e same i n c r e m e n t a l t a x payment t o a second compen- s a t i o n q u e s t i o n which p o s i t s t h e p o s s i b l e c l o s u r e o f Museum e x h i b i t s . I t was e x p e c t e d t h a t t h e h a r s h e r consequence o f t h e compensation a l t e r n a t i v e would r e s u l t i n s t i l l fewer a c c e p t a n c e s o f t h e o f f e r e d s e t t l e m e n t , and t h i s r e s u l t i s c l e a r l y shown i n t h e accompanying t a b l e . While s e v e n t e e n o f t h e t h i r t y - t h r e e r e s p o n d e n t s (52 p e r c e n t ) v a l u e d t h e Museum a t $10 o r more a c c o r d i n g t o t h e payment measure, 96 p e r c e n t o f t h o s e i n t e r v i e w e d (43 o f 45 p e r s o n s ) d e c l i n e d t o a c c e p t t h e o f f e r o f an equal amount as compensation. T h i s r e s u l t s 2 i n an x o f 20.90, which w i t h one Degree o f Freedom i s a g a i n s i g n i f i c a n t a t th e 5 p e r c e n t l e v e l . 95 V a l u e > $10 V a l u e < $10 T o t a l W i l l i n g t o pay $10 17 16 33 W i l l i n g t o a c c e p t $10 43 2 45 ( T e s t 14) T o t a l 60 18 78 x L = 20.90 COMPARISON OF ALTERNATIVE HYPOTHETICAL MEASURES T h i s s e c t i o n r e v i e w s t h e e m p i r i c a l r e s u l t s which have been o b t a i n e d f r o m a co m p a r i s o n o f a l t e r n a t i v e h y p o t h e t i c a l measures o f economic v a l u e based on an i n d i v i d u a l ' s w i l l i n g n e s s t o pay f o r a good and h i s o r her w i l l i n g n e s s t o a c c e p t c o m p e n s a t i o n i n r e t u r n f o r i t s l o s s . As d i s c u s s e d i n C h a p t e r s II and I I I , t h r e e major forms o f t h e e v a l u a t i o n q u e s t i o n have been employed i n p r e - v i o u s s t u d i e s o f non-market goods: a c l o s e d - e n d e d o r a l l - o r - n o n e measure, an open-ended t e c h n i q u e , and any o f a v a r i e t y o f b i d d i n g game o r a u c t i o n methods. A l t h o u g h some d i s c u s s i o n can be found i n the l i t e r a t u r e r e g a r d i n g t h e a b i l i t y o f each o f t h e s e a p p r o a c h e s t o a c c u r a t e l y d e p i c t r e s p o n d e n t s ' t r u e economic v a l u e s f o r a v a r i e t y o f non-market goods ( f o r example, S t o l l e t a l _ . , 1982 o r R a n d a l l and B r o o k s h i r e , 1978), no i n f o r m a t i o n i s a v a i l a b l e r e g a r d i n g t h e r e s u l t s o f a d i r e c t c omparison o f t h e t h r e e m e a s u r e s % T h i s s e c t i o n r e p o r t s on a s e r i e s o f v e r y s i m p l e e x p e r i m e n t s which have been d e s i g n e d t o a c h i e v e t h i s o b j e c t i v e . The framework and o r g a n i z a t i o n o f t h e s u r v e y s have a l r e a d y been e n c o u n t e r e d i n t h e p r e v i o u s s e c t i o n : each r e s - pondent i s c o n f r o n t e d w i t h a l i s t o f t e n f a m i l i a r goods o r e x p e r i e n c e s and asked t o e s t i m a t e t h e i r v a l u e f o l l o w i n g a s h o r t i n t r o d u c t o r y d e s c r i p t i o n o f t h e r u l e s under which payment o r compensation would be made. The r e s u l t s o f q u e s t i o n number 4, which i n v o l v e d t h e p u r c h a s e o r s a l e o f a l o t t e r y t i c k e t , w i l l a g a i n be a n a l y z e d ; t h e e x i s t e n c e o f t h e o t h e r n i n e q u e s t i o n s t h e r e f o r e 96 s e r v e s t o f a m i l i a r i z e t h e r e s p o n d e n t w i t h t h e e v a l u a t i o n p r o c e d u r e and t o mask t h e q u e s t i o n o f p r i n c i p a l i n t e r e s t . A l l comparisons a r e a g a i n between sub- j e c t s . I t was hoped t h a t an a n a l y s i s o f t e s t r e s u l t s would c o n t r i b u t e a d d i - t i o n a l i n f o r m a t i o n on two i m p o r t a n t i s s u e s . F i r s t , i f t h e v a l u e s h e l d by p a r t i c i p a n t s were c l e a r l y a r t i c u l a t e d and w e l l u n d e r s t o o d , t h e n a r e l a t i v e l y m i n o r change i n measurement p r o c e d u r e s — f o r example, from a c l o s e d - e n d e d t o a b i d d i n g game a p p r o a c h — s h o u l d have l i t t l e e f f e c t on the aver a g e p r e f e r e n c e s e x p r e s s e d by t h e sample p o p u l a t i o n . I f i t was i n s t e a d d i s c o v e r e d t h a t p r e f e r - ences were s u b s t a n t i a l l y a l t e r e d by t h e change i n q u e s t i o n form, n o t o n l y the s u b j e c t ' s s u b j e c t i v e sense o f h i s q r h e r own v a l u e s but a l s o t h e n e u t r a l i t y o f th e s u r v e y i n s t r u m e n t would be c a s t i n t o doubt. T h i s second p o i n t runs c o u n t e r t o t h e i m p l i e d a s s u m p t i o n o f any s t u d y which has c o n s i d e r e d o n l y one e v a l u a - t i o n a p p roach and m a i n t a i n s t h a t t h e r e s u l t i n g e s t i m a t e s p r o v i d e an a c c u r a t e r e f l e c t i o n o f p a r t i c i p a n t ' s t r u e v a l u e s . The r e s u l t s which have been o b t a i n e d demonstrate a s u b s t a n t i a l d i f f e r - ence i n t h e t h r e e e x p r e s s e d p r e f e r e n c e measures, and p r o v i d e p r e l i m i n a r y e v i d e n c e t h a t i n d i c a t e d v a l u e s w i l l v a r y w i t h t h e t y p e o f e v a l u a t i o n f o r m a t which i s s e l e c t e d . In a d d i t i o n , t h e r e s u l t s s u g g e s t t h a t t h i s v a r i a t i o n i s not random but i s i n s t e a d s u r p r i s i n g l y s y s t e m a t i c . In p a r t i c u l a r , t h e e s t i m a t e s w h i c h were o b t a i n e d u s i n g a b i d d i n g game a p p r o a c h were c o n s i s t e n t l y h i g h e r than t h o s e e x p r e s s e d u s i n g e i t h e r a c l o s e d - e n d e d o r open-ended t e c h n i q u e ; t h i s d i f f e r e n c e i s m a i n t a i n e d i n both t h e payment and the compensation q u e s t i o n s . The complete s e t o f s u r v e y s , as shown i n t h e Appendix ( Q u e s t i o n n a i r e s 8a t o 8g, 9a t o 9 g ) , employs two d i f f e r e n t b i d d i n g game measures ( u s i n g $0.20 and $0.40 b i d i n c r e m e n t s ) and' two d i f f e r e n t open-ended measures (one p r e s e n t - i n g a range o f v a l u e s and a n o t h e r where r e s p o n d e n t s f i l l i n t h e i r own e n t r y ) 97 a l o n g w i t h one c l o s e d - e n d e d a p p r o a c h . These r e s u l t s a r e summarized i n T a b l e 1, which shows t h e p e r c e n t a g e o f r e s p o n d e n t s e i t h e r w i l l i n g t o pay o r w i l l i n g t o a c c e p t c o m p e n s a t i o n as t h e monetary sum i n v o l v e d i s a l l o w e d t o v a r y . However, i t does not seem w o r t h w h i l e t o compare t h e r e s u l t s f o r each a l t e r n a t i v e a t each payment l e v e l . I n s t e a d , s i x examples i l l u s t r a t e t h e v a r i a t i o n which has been o b s e r v e d . T e s t s 16 and 17 ( Q u e s t i o n n a i r e s 8 f  and 8 c , 9 f and 9c) These two t e s t s both compare a b i d d i n g game w i t h a c l o s e d - e n d e d ques- t i o n framework. F o r t h e payment a l t e r n a t i v e ( t e s t 1 6), the b i d d i n g game s t a r t s a t $0.20 and i n c r e a s e s by $0.40 i n t e r v a l s ; r e s p o n s e s t o t h i s q u e s t i o n a r e compared t o t h o s e f o r an a l l - o r - n o n e payment l e v e l o f $0.60. F o r the s e l l i n g a l t e r n a t i v e ( t e s t 1 7 ) , t h e b i d d i n g game a g a i n s t a r t s a t $0.20 and i n c r e a s e s by $0.40 i n t e r v a l s , w i t h t h e t e s t c o m p a r i s o n made t o a n o n - n e g o t i a b l e o f f e r o f $0.60 i n compensation. In both e x p e r i m e n t s a d i f f e r e n c e was o b s e r v e d i n r e s p o n s e s t o the two e v a l u a t i o n a p p r o a c h e s , but i n n e i t h e r c a s e was i t s t a t i s t i c a l l y s i g n i f i c a n t a t the 5 p e r c e n t l e v e l . As de m o n s t r a t e d i n t e s t 16, n i n e t e e n o f t h i r t y - f i v e p a r t i c i p a n t s i n t h e w i l l i n g n e s s t o pay b i d d i n g game (54 p e r c e n t ) v a l u e d t he t i c k e t a t more th a n $0.60 w h i l e o n l y s i x t e e n o f f o r t y - s i x p e r s o n s (35 p e r c e n t ) were w i l l i n g t o pay an equal amount on t h e b a s i s o f t h e i r r e s p o n s e s t o the c l o s e d - e n d e d q u e s t i o n . Respondents a l s o demanded a h i g h e r a v e r a g e l e v e l o f compe n s a t i o n under a b i d d i n g game a p p r o a c h . While twenty-two o f f o r t y - s i x p a r t i c i p a n t s (48 p e r c e n t ) were w i l l i n g t o a c c e p t a n o n - n e g o t i a b l e o f f e r o f $0.60 i n c o m p e n s a t i o n , o n l y t w e l v e o f f o r t y - o n e p e r s o n s (30 p e r c e n t ) engaged i n the b i d d i n g game measure o f v a l u e would a g r e e t o an e q u i v a l e n t o f f e r . TABLE 1 PERCENTAGE OF RESPONDENTS INDICATING DESIRE TO PARTICIPATE IN HYPOTHETICAL LOTTERIES B i d d i n g B i d d i n g Game - 201 Game - 40<£ C l o s e d - E n d e d C l o s e d Range Open-Ended 01 01 01 01 01 lo to lo lo jo W i l l i n g t o pay $0.60 52 54 35 29 27 W i l l i n g t o pay $1.00 32 40 26 10 5 W i l l i n g t o a c c e p t $0.20 19 12 30 27 25 W i l l i n g t o a c c e p t $0.60 32 29 48 63 53 99 W i l l i n g t o pay $0.60, b i d d i n g game W i l l i n g t o pay $0.60, c l o s e d - e n d e d T o t a l W i l l i n g t o pay $0.60. b i d d i n g game W i l l i n g t o pay $0.60 c l o s e d - e n d e d T o t a l V a l u e > $0.60 V a l u e < $0.60 T o t a l 16 19 16 30 35 46 ( T e s t 16) 35 46 81 V a l u e > $0.60 V a l u e < $0.60 T o t a l 29 12 41 24 22 53 34 87 3.12 46 ( T e s t 17) = 3.10 In both c a s e s , i t seems l i k e l y t h a t p a r t i c i p a n t s were i n f l u e n c e d by the gaming a s p e c t o f a b i d d i n g o p p o r t u n i t y . Whereas a c l o s e d - e n d e d e v a l u a t i o n i s d i r e c t and v e r y t o the. p o i n t , any i t e r a t i v e b i d d i n g p r o c e d u r e i n t r o d u c e s an a d d i t i o n a l e lement o f gamesmanship which c o u l d prove t o be l a r g e l y i n d e p e n d e n t o f r e s p o n d e n t s ' v a l u e s a s s o c i a t e d w i t h t h e p a r t i c u l a r good under c o n s i d e r a t i o n . For example, an i n d i v i d u a l ' s e x p r e s s e d v a l u e may s i m p l y r e f l e c t h i s o r h e r d e s i r e t o " p l a y t h e game"--engage i n c o n s e c u t i v e b i d s - - a c e r t a i n number o f t i m e s , o r i t may r e f l e c t t h e i r p e r c e p t i o n o f a hi d d e n agenda on the p a r t o f t h e i n t e r v i e w e r by which a f o r m u l a such as " i n i t i a l v a l u e p l u s two i t e r a t i o n s " would y i e l d a " c o r r e c t " r e s p o n s e . Some e v i d e n c e f o r t h i s i n t e r p r e t a t i o n i s g a i n e d from T a b l e -1, which shows t h a t t h e f o u r t i c k e t v a l u e s o b t a i n e d w i t h a $0.40 b i d i n t e r v a l a r e a l l s l i g h t l y higher, than t h o s e d e r i v e d u s i n g a $0.20 i n c r e m e n t . 100 T e s t s 18 and 19 ( Q u e s t i o n n a i r e s 8e and 8g, 9e and 9gT '• These t e s t s compare b i d d i n g games u s i n g a $0.20 i n c r e m e n t w i t h i n d i v i d - u a l s ' r e s p o n s e s t o an open-ended v a l u e q u e s t i o n . In both c a s e s the v a r i a t i o n i n t h e two a p p r o a c h e s i s a g a i n .meaningful, and i n t h e same d i r e c t i o n as i n the p r e c e d i n g t e s t s : r e s p o n d e n t s a r e w i l l i n g t o pay s u b s t a n t i a l l y l e s s f o r a t i c k e t under an open-ended e v a l u a t i o n framework and a l s o t e n d t o demand s i g n i - f i c a n t l y l e s s c o m p e n s a t i o n i n r e t u r n f o r i t s l o s s . T h i s f i n d i n g i s s u r p r i s i n g , s i n c e t h e open-ended f o r m a t was e x p e c t e d t o encourage t h e h i g h e s t e x p r e s s i o n s o f v a l u e f o r both t h e payment and the s e l l i n g a l t e r n a t i v e s . P a r t o f the e x p l a n a t i o n may be found i n the c o n t e x t u a l d i f f e r e n c e s between t h i s t e s t , which asked p a r t i c i p a n t s t o v a l u e a chance to win a r a t h e r mundane good, and e a r l i e r t e s t s c o n c e r n i n g the v a l u e o f d e c l i n e s i n a i r q u a l i t y . A l o t t e r y f o r a c a l c u l a t o r i s f a m i l i a r and i n v o l v e s an ex- change between two r e a d i l y s u b s t i t u t a b l e c o m m o d i t i e s , w i t h t h e r e s u l t t h a t p a r t i c i p a n t s can e a s i l y bound t h e i r s u b j e c t i v e e s t i m a t e s o f i t s economic v a l u e . However, t h e _ t r a d e - o f f between money and e n v i r o n m e n t a l q u a l i t y i s unusual and ( f o r many p e o p l e ) h i g h l y c o n t r o v e r s i a l . As a r e s u l t , i t may be much more d i f f i c u l t t o s e t l i m i t s on the r e a l c o s t s o f t h e exchange because t h e y a r e p s y c h o l o g i c a l as w e l l as economic, an argument t o which we w i l l r e t u r n i n the f i n a l s e c t i o n o f t h i s c h a p t e r . The r e s u l t s o f t h e payment a l t e r n a t i v e a r e shown below. Whereas 32 p e r c e n t o f t h e p a r t i c i p a n t s (10 o f 31), v a l u e d t h e t i c k e t as worth a t l e a s t $1.00 u nder a b i d d i n g r e g i m e , o n l y 5 p e r c e n t o f t h e r e s p o n d e n t s (2 o f 37) a g r e e d t o pay $1.00 o r more when th e open-ended q u e s t i o n f o r m a t was employed. 2 W ith an x o f 8.26, the d i f f e r e n c e i n t h e s e two r e s p o n s e p a t t e r n s i s s i g n i f i - c a n t a t t h e 5 p e r c e n t l e v e l . 101 V a l u e > $1.00 V a l u e < $1.00 T o t a l W i l l i n g t o pay $1.00, 10 21 31 b i d d i n g game W i l l i n g t o pay $1.00, 2 35 37 ( T e s t 18) open-ended T o t a l 12 56 68 x 2 = 8.26 The r e s u l t s o f t h e two compensation q u e s t i o n s p r o v i d e a d d i t i o n a l e v i d - ence t h a t i n f a m i l i a r and r e a d i l y commensurate s i t u a t i o n s t h e b i d d i n g game form o f t h e e v a l u a t i o n q u e s t i o n w i l l t e n d t o encourage h i g h e r r e s p o n s e s than an open-ended a l t e r n a t i v e . In t h i s e x p e r i m e n t , t w e n t y - f i v e o f t h i r t y - s e v e n r e s - pondents (68 p e r c e n t ) r e f u s e d t o a c c e p t an o f f e r o f $0.60 as compensation f o r t h e i r t i c k e t when t e s t e d under a b i d d i n g game framework, w h i l e o n l y s e v e n t e e n o f t h i r t y - s i x p a r t i c i p a n t s (47 p e r c e n t ) r e f u s e d an e q u i v a l e n t s e t t l e m e n t when an open-ended t e s t was used. However, t h i s d i f f e r e n c e i s n o t s t a t i s t i c a l l y s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . V a l u e > $0.60 V a l u e <$0.60 T o t a l W i l l i n g t o a c c e p t $0.60, 25 12 37 b i d d i n g game W i l l i n g t o a c c e p t $0.60, 17 19 36 ( T e s t 19) open-ended T o t a l 42 31 73 x 2 = 3.05 T e s t s 20 and 21 ( Q u e s t i o n n a i r e s 8d and 8 a , 9c and 9 a j These t e s t s compare the c l o s e d - e n d e d and c l o s e d - r a n g e v a l u a t i o n ap- p r o a c h e s , the f i r s t o f which asks r e s p o n d e n t s i f t h e y would a g r e e t o pay o r r e c e i v e a s i n g l e s p e c i f i e d sum o f money and t h e second which p r e s e n t s a range o f 102 f i v e d i f f e r e n t amounts between $0.20 and $1.00. There was no c l e a r a p r i o r i e x p e c t a t i o n o f d i f f e r e n c e i n t h e two f o r m a t s , s i n c e t h e d e c i s i o n t o be made i n both c a s e s i s e s s e n t i a l l y s i m i l a r . S u r p r i s i n g l y , a comparison o f t h e w i l l i n g n e s s t o pay form o f t h e ques- t i o n s d e m o n s t r a t e d a v a r i a t i o n i n the two a p p r o a c h e s . While e i g h t o f t h i r t y r e s p o n d e n t s (27 p e r c e n t ) t o t h e a l l - o r - n o n e q u e s t i o n a g r e e d t o pay a t l e a s t $1.00 f o r a l o t t e r y t i c k e t , o n l y 10 p e r c e n t (5 o f 49) o f t h o s e g i v e n a c h o i c e 2 o f v a l u e s f e l t t h a t t h e o p p o r t u n i t y was worth as much. However, the x v a l u e f o r t h e d i s p a r i t y o f 3.76 i s not s t a t i s t i c a l l y s i g n i f i c a n t a t the 5 p e r c e n t l e v e l . One e x p l a n a t i o n f o r t h e v a r i a t i o n i s t h a t p a r t i c i p a n t s i n the c l o s e d - range e x p e r i m e n t might have been i n f l u e n c e d t o s t a t e l o w e r v a l u e s by the f a c t t h a t $1.00 was an e n d p o i n t o f t h e s c a l e and the m i d p o i n t o f t h e f i v e p o s s i b l e v a l u e s was o n l y $0.60. Yet t h e e v i d e n c e f o r t h i s i n t e r p r e t a t i o n i s weak: as shown i n T a b l e 1, t h e v a r i a t i o n between c l o s e d - e n d e d and c l o s e d - r a n g e payment q u e s t i o n s was s m a l l e r a t a $0.60 l e v e l but the d i f f e r e n c e i n the compensation a l t e r n a t i v e s was l a r g e r a t the $0.60 m i d p o i n t o f t h e range than a t $0.20. V a l u e > $1.00 V a l u e < $1.00 T o t a l W i l l i n g t o pay $1.00, 8 22 30 c l o s e d - e n d e d W i l l i n g t o pay $1.00, - 5 44 49 ( T e s t 20) c l o s e d - r a n g e T o t a l 13 66 79 x 2 = 3.76 The w i l l i n g n e s s t o s e l l forms o f t h e two q u e s t i o n s a l s o produced d i f f e r - e n t a v e r a g e v a l u e s , but i n t h i s c a s e t h e r e s u l t s a r e l e s s r e l i a b l e . W h ile . j u s t o v e r o n e - h a l f o f t h o s e p a r t i c i p a t i n g i n t h e c l o s e d - e n d e d e x p e r i m e n t (24 o f 46, o r 52 p e r c e n t ) s a i d t h a t t h e t i c k e t was worth a t l e a s t $0.60, t h i r t y o f 103 the f o r t y - e i g h t p e r s o n s (72 p e r c e n t o f t h e sample) g i v e n a c l o s e d - r a n g e ques- t i o n n a i r e i n d i c a t e d t h a t the t i c k e t was worth l e s s t h a n $0.60 t o them. With 2 an x o f 1.99, t h e d i f f e r e n c e i s not s i g n i f i c a n t a t the 5 p e r c e n t l e v e l . V a l u e > $0.60 V a l u e < $0.60 T o t a l W i l l i n g t o a c c e p t $0.60, 24 22 46 c l o s e d - e n d e d W i l l i n g t o a c c e p t $0.60, 18 30 48 ( T e s t 21) c l o s e d - r a n g e T o t a l 42 52 94 x 2 = 1.99 COMPARISONS OF HYPOTHETICAL AND ACTUAL RESPONSES In t h e f i r s t s e c t i o n o f t h i s c h a p t e r I have p r e s e n t e d t h e r e s u l t s o f a number o f e x p e r i m e n t s which d e m o n s t r a t e t h a t p e o p l e w i l l g e n e r a l l y r e q u i r e more comp e n s a t i o n t o w i l l i n g l y g i v e up a good c o n s i d e r e d t o be p a r t o f t h e i r e n t i t l e m e n t than t h e y would pay t o p u r c h a s e o r t o m a i n t a i n i t . A l a r g e number o f o t h e r h y p o t h e t i c a l s u r v e y s , some o f which have been d i s c u s s e d i n the p r e - c e d i n g c h a p t e r s , have a l s o r e a c h e d a s i m i l a r c o n c l u s i o n . However, the f a c t t h a t most s t u d i e s have employed q u e s t i o n s based on h y p o t h e t i c a l s c e n a r i o s has s e r v e d as a m a j o r s o u r c e o f c r i t i c i s m and p r o v i d e d a c o n v e n i e n t avenue by which c o n v e n t i o n a l t h e o r y — w h i c h m a i n t a i n s t h a t t h e two approaches s h o u l d y i e l d e q u i v a l e n t measures o f v a l u e — c o u l d e s c a p e a c o n f r o n t a t i o n w i t h c o n f l i c t i n g e m p i r i c a l e v i d e n c e . In o r d e r t o t e s t t h e r o b u s t n e s s o f v a r i a t i o n s i n payment and compensa- t i o n measures o f v a l u e , two modest e x p e r i m e n t s have been d e v i s e d which d i r e c t l y compare t h e r e s u l t s o f h y p o t h e t i c a l and a c t u a l t r a n s a c t i o n s . The b a s i c form o f t h e s e e x p e r i m e n t s c l o s e l y f o l l o w s e a r l i e r t e s t s d e v e l o p e d by K n e t s c h and S i n d e n (1982). Both common sense l o g i s t i c s and b u d g e t a r y c o n s t r a i n t s s u g g e s t e d 104 t h a t a l o t t e r y would p r o v i d e a c o n v e n i e n t a s s e t f o r which p r i c e s c o u l d e a s i l y be v a r i e d and income o r w e a l t h e f f e c t s would c l e a r l y remain n e g l i g i b l e . So l o n g as a l l f o u r t e s t s i t u a t i o n s — h y p o t h e t i c a l and a c t u a l , p u r c h a s e and com- p e n s a t i o n — i n v o l v e the same o p p o r t u n i t y , p a r t i c i p a n t s ' b e h a v i o r toward gamb- l i n g s h o u l d a l s o be s y m e t r i c between t h e c h o i c e s and t h e r e f o r e p r e s e r v e the more g e n e r a l a p p l i c a b i l i t y o f t h e r e s u l t s . The f i r s t s e r i e s o f h y p o t h e t i c a l e x p e r i m e n t s , which o f f e r s t u d e n t s t h e c h o i c e o f p u r c h a s i n g o r t r a d i n g a l o t t e r y t i c k e t which w i l l g i v e them a one i n t h i r t y chance o f w i n n i n g an e l e c t r o n i c c a l c u l a t o r , has a l r e a d y been d i s c u s s e d ; r e s u l t s from both t h e c l o s e d - e n d e d and b i d d i n g game e x p e r i m e n t s w i l l be r e v i e w e d . A second s e t o f q u e s t i o n n a i r e s a l s o a sked p a r t i c i p a n t s t o v a l u e t e n goods o r a c t i v i t i e s but i n t h i s c a s e t h e l o t t e r y p r o v i d e d a one i n f o r t y chance t o win a b o t t l e o f i m p o r t e d champagne. A range o f v a l u e s between $0.20 and $1.00 was p r o v i d e d , and r e s p o n d e n t s were asked t o c i r c l e the v a l u e which b e s t r e p r e s e n t e d e i t h e r t h e i r maximum w i l l i n g n e s s t o pay f o r a t i c k e t o r t h e minimum p r i c e a t which t h e y would a g r e e t o s e l l a t i c k e t . P a r t i c i p a n t s i n t h e a c t u a l e x p e r i m e n t s were randomly s e l e c t e d (depen- d i n g on whether t h e i r t i c k e t number was even o r odd) t o be i n one o f two g r o u p s . Each s t u d e n t i n t h e f i r s t s e t was g i v e n a t i c k e t and t o l d t h a t t h e y had t h e o p t i o n o f e i t h e r p a y i n g t o keep i t and p a r t i c i p a t i n g i n the l o t t e r y o r r e f u s i n g t o pay and t h e r e b y l o s i n g t h e chance t o t a k e p a r t . S t u d e n t s i n t h e second group, who c o u l d p a r t i c i p a t e i n the l o t t e r y w i t h o u t p a y i n g , were o f f e r e d money i f t h e y would g i v e up t h e i r t i c k e t and t h e r e b y l o s e the chance t o be i n t h e l o t t e r y . P a r t i c i p a n t s were i n t e r v i e w e d e i t h e r i n d i v i d u a l l y o r i n s m a l l g r o u p s , and were no t i n f o r m e d t h a t c o mparisons o f payment and compen- s a t i o n o r a c t u a l and h y p o t h e t i c a l a p p r o a c h e s were p l a n n e d . The c a s h t r a n s a c - t i o n s i n t h e c a l c u l a t o r r a f f l e were made a t t h r e e l e v e l s o f p a y m e n t — $ 0 . 2 0 , 105 $0.60 and $1.00--under both a b i d d i n g game and a c l o s e d - e n d e d q u e s t i o n f o r m a t ; open-ended t e s t s were not a t t e m p t e d f o r o b v i o u s b u d g e t a r y r e a s o n s . A c t u a l payments i n the champagne e x p e r i m e n t were a l l a t a n o n - n e g o t i a b l e l e v e l o f $0.50. The r e s u l t s o f t h e s e e x p e r i m e n t s add t o t h e e v i d e n c e t h a t d i s p a r i t i e s i n r e s p o n s e s t o b u y i n g and s e l l i n g measures o f v a l u e a r e i n d i c a t i v e o f s i g n i - f i c a n t d i f f e r e n c e s i n p r e f e r e n c e s and n o t m e r e l y t h e r e s u l t o f c o n t r i v e d h y p o t h e t i c a l t e s t s i t u a t i o n s . T h i s e v i d e n c e t a k e s two forms. F i r s t , r e s p o n s e s t o t h e a c t u a l e x p e r i m e n t s d e m o n s t r a t e t h a t t h e v a l u e p l a c e d on the t i c k e t v a r i e s s u b s t a n t i a l l y a c c o r d i n g t o whether p a r t i c i p a n t s a r e asked t o pay money i n o r d e r t o p u r c h a s e i t o r t o a c c e p t money i n r e t u r n f o r g i v i n g i t up. S e c o n d l y , t h e a c t u a l b e h a v i o r o f p a r t i c i p a n t s i n t e s t s i n v o l v i n g a c a s h t r a n s - a c t i o n i s s u r p r i s i n g l y s i m i l a r t o t h e p r e f e r e n c e s which have been i n d i c a t e d by p a r t i c i p a n t s i n the h y p o t h e t i c a l e x p e r i m e n t s . A summary o f s u r v e y r e s p o n s e s i s p r e s e n t e d i n T a b l e 2, which shows the p e r c e n t a g e o f r e s p o n d e n t s i n d i c a t i n g t h e i r d e s i r e t o p a r t i c i p a t e i n e i t h e r t h e h y p o t h e t i c a l o r t h e r e a l l o t t e r i e s under both e v a l u a t i o n measures. These r e s u l t s a r e s i m i l a r t o t h o s e r e p o r t e d by Knetsch and S i n d e n (1982) and s t r o n g l y s u g g e s t t h a t r e s p o n s e s t o h y p o t h e t i - c a l q u e s t i o n s can a t l e a s t i n some c a s e s p r o v i d e r e a s o n a b l y c l o s e approxima- t i o n s o f r e s p o n d e n t s ' a c t u a l b e h a v i o r . T e s t s 23, 24 and 25  ( Q u e s t i o n n a i r e s 8c and 9c) These e x p e r i m e n t s compare t h e r e s u l t s o f h y p o t h e t i c a l and a c t u a l t e s t s c e n a r i o s which were c o n d u c t e d u s i n g a c l o s e d - e n d e d q u e s t i o n f o r m a t . The s e l e c t e d l e v e l o f payment was $0.60, w i t h one group o f p a r t i c i p a n t s a sked i f t h e y would a g r e e t o pay t h i s sum as the e n t r a n c e p r i c e t o a l o t t e r y and a second group asked i f t h e y would a c c e p t an equal amount as compensation f o r TABLE 2 PERCENTAGE OF RESPONDENTS INDICATING DESIRE TO PARTICIPATE IN ACTUAL LOTTERIES W i l l i n g n e s s t o Pay W i l l i n g n e s s t o A c c e p t L e v e l o f Q u e s t i o n H y p o t h e t i c a l A c t u a l H y p o t h e t i c a l A c t u a l L o t t e r y P r i z e Payment Format % % % - % C a l c u l a t o r $0.20 B i d d i n g Game Yl 9 Closed-Ended 68 68 30 23 $0.60 B i d d i n g Game 54 56 29 26 Closed-Ended 35 27 48 42 $1.00 B i d d i n g Game 40 31 Closed-Ended 26 21 50 53 Champagne $0.50 Closed-Ended 27 29 39 44 107 the l o s s o f t h e i r t i c k e t . In both c a s e s t h e p r i z e was a c a l c u l a t o r o f un- s p e c i f i e d monetary v a l u e ; p a r t i c i p a n t s were i n f o r m e d t h a t t h e p r i z e was on hand and t h a t a winner would be chosen w i t h i n a few minutes (as soon as a l l t h i r t y t i c k e t s had been d i s t r i b u t e d ) . The r e s p o n s e s i n t h e a c t u a l r a f f l e c l o s e l y r e p l i c a t e t h e r e s u l t s o f t h e h y p o t h e t i c a l e x p e r i m e n t . P a r t i c i p a n t s ' w i l l i n g n e s s t o pay f o r a l o t t e r y t i c k e t was a g a i n compared w i t h t h e i r w i l l i n g n e s s t o a c c e p t compensation f o r i t s l o s s . I f t h e two bases f o r e v a l u a t i o n a r e e q u i v a l e n t , as s u g g e s t e d by c o n v e n t i o n a l economic t h e o r y , then t he same p r o p o r t i o n o f i n d i v i d u a l s s h o u l d d e c i d e t o pay $0.60 t o a c q u i r e a t i c k e t as would a g r e e t o g i v e i t up f o r an equal c a s h s e t t l e m e n t . However, o n l y n i n e o f t h e t h i r t y - t h r e e p e r s o n s t e s t e d (27 p e r c e n t ) a c t u a l l y made t h e $0.60 payment r e q u i r e d t o t a k e p a r t i n the l o t t e r y w h i l e e i g h t e e n o f t h i r t y - o n e p e r s o n s (58 p e r c e n t ) d e m o n s t r a t e d t h a t a t i c k e t was worth more than t h i s by t h e i r r e f u s a l t o t r a d e i t f o r $0.60 i n 2 c a s h . The x f o r t h i s d i f f e r e n c e i s 6.16, which i s s i g n i f i c a n t a t t h e 5 p e r - c e n t l e v e l and p r o v i d e s s t r o n g s u p p o r t i n g e v i d e n c e t h a t t h e o b s e r v e d d i s p a r i t y i n r e s p o n s e s t o the two measures i s r e l i a b l e . V a l u e > $0.60 V a l u e < $0.60 T o t a l W i l l i n g t o pay $0.60 9 24 33 W i l l i n g t o a c c e p t $0.60 18 13 31 ( T e s t 23) T o t a l 27 37 64 x 2 = 6.16 The f a c t t h a t p u r c h a s e and s e l l i n g p r i c e s a r e s i g n i f i c a n t l y d i f f e r e n t f o r b o t h t h e a c t u a l and h y p o t h e t i c a l e x p e r i m e n t s does n o t n e c e s s a r i l y i m p l y t h a t p a r t i c i p a n t s ' r e s p o n s e s t o a c t u a l and h y p o t h e t i c a l s i t u a t i o n s a r e s i m i l a r . T e s t s 24 and 25 t h e r e f o r e compared t h e h y p o t h e t i c a l and a c t u a l r e s p o n s e s which 108 have been o b t a i n e d t o the payment and s e l l i n g e v a l u a t i o n a l t e r n a t i v e s . W i l l i n g to- pay, h y p o t h e t i c a l W i l l i n g t o pay, a c t u a l T o t a l V a l u e > $0.60 V a l u e < $0.60 T o t a l 16 30 24 46 33 ( T e s t 24) 25 54 79 W i l l i n g t o a c c e p t , h y p o t h e t i c a l W i l l i n g t o a c c e p t , a c t u a l T o t a l V a l u e > $0.60 V a l u e <. $0.60 T o t a l 24 22 46 18 13 42 35 77 .47 31 ( T e s t 25) .26 With x v a l u e s i n each c a s e o f s u b s t a n t i a l l y l e s s than one, the C h i - S q u a r e t e s t s c o n f i r m the v i s u a l e x p e c t a t i o n t h a t t h e r e i s no s t a t i s t i c a l d i f f e r e n c e i n v a l u e s e x p r e s s e d by t h o s e p a r t i c i p a t i n g i n t h e h y p o t h e t i c a l and the a c t u a l e x p e r i m e n t s . T e s t s 26, 27 and 28  ( Q u e s t i o n n a i r e s 8 f and 9 f ) T h i s s e t o f e x p e r i m e n t s compare i n d i v i d u a l s ' r e s p o n s e s t o h y p o t h e t i c a l and a c t u a l t e s t s i t u a t i o n s i n which a b i d d i n g game was used to e s t i m a t e v a l u e s . Both t h e payment and t h e c ompensation t e s t s employed a s t a r t i n g b i d o f $0.20 and t h e r e s u l t s show t h e p r o p o r t i o n o f s t u d e n t s w i l l i n g t o p u r c h a s e a t i c k e t o r a c c e p t c ompensation f o r i t s l o s s a t a payment l e v e l o f $0.60. Responses t o t h e payment and s e l l i n g measurement a l t e r n a t i v e s a r e p r e s e n t e d below. F o r t y - f o u r p e r c e n t (21 o f 48) o f t h o s e p a r t i c i p a t i n g i n the w i l l i n g n e s s t o pay e x p e r i m e n t v a l u e d t h e l o t t e r y t i c k e t a t l e s s than $0.60, 109 whereas o n l y 26 p e r c e n t (14 o f 54) o f t h o s e t e s t e d were w i l l i n g t o a c c e p t an 2 e q u i v a l e n t sum i n compensation f o r i t s l o s s . With an x o f 3.54, t h i s d i f f e r - ence i s not s t a t i s t i c a l l y s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . V a l u e > $0.60 V a l u e < $0.60 T o t a l W i l l i n g t o pay $0.60 27 21 48 W i l l i n g t o a c c e p t $0.60 40 14 54^ ( T e s t 26) T o t a l 67 35 102 x 2 = 3.54 T e s t s 27 and 28 i n v e s t i g a t e whether i t i s s i g n i f i c a n t t h a t p a r t i c i - p a n ts made o r a c c e p t e d a c t u a l c a s h payments i n o r d e r t o buy o r s e l l a r e a l l o t t e r y t i c k e t o r s i m p l y i n d i c a t e d t h e i r p r e f e r e n c e s i n r e f e r e n c e t o a hypo- t h e t i c a l exchange. T e s t 27, which compares p a r t i c i p a n t s ' h y p o t h e t i c a l and a c t u a l payments f o r a t i c k e t , and T e s t 28, which compares t h e i r w i l l i n g n e s s t o a c c e p t h y p o t h e t i c a l and r e a l c a s h s e t t l e m e n t s i n exchange f o r the oppor- t u n i t y t o p a r t i c i p a t e i n t h e l o t t e r y , s u g g e s t t h a t i t i s n o t . I n s t e a d , the 2 i n s i g n i f i c a n t x v a l u e s o b t a i n e d i n t h e two t e s t s s u p p o r t t h e a c c e p t a n c e o f t h e n u l l h y p o t h e s i s t h a t no d i f f e r e n c e e x i s t s i n t h e r e s p o n s e s t o r e a l and t o h y p o t h e t i c a l q u e s t i o n f o r m a t s . V a l u e > $0.60 V a l u e < $0.60 T o t a l W i l l i n g t o pay, 19 16 35 h y p o t h e t i c a l W i l l i n g t o pay, 27 21 48 ( T e s t 27) a c t u a l T o t a l 46 37 83 x 2 = .03 n o V a l u e > $0.60 V a l u e $0.60 T o t a l W i l l i n g t o a c c e p t , h y p o t h e t i c a l 29 12 41 W i l l i n g t o a c c e p t , a c t u a l 40 14 54 ( T e s t 28) T o t a l 69 26 95 x 2 = .14 T e s t s 29, 30 and 31 ( Q u e s t i o n n a i r e s 10a and 10b) These t h r e e t e s t s compare s t u d e n t s ' r e a c t i o n s t o a l o t t e r y i n which t h e p r i z e was a b o t t l e o f i m p o r t e d champagne. As i n the e x p e r i m e n t s which used a c a l c u l a t o r , p a r t i c i p a n t s were not g i v e n any f u r t h e r i n f o r m a t i o n r e g a r d - i n g t h e t y p e o r v a l u e o f t h e champagne but t h e y were t o l d t h a t the p r i z e would be awarded m o m e n t a r i l y . A l t h o u g h the e x p e c t e d v a l u e o f a t i c k e t was i n t h i s c a s e s l i g h t l y l o w e r , t h e d i f f e r e n c e i n t h e e x p e r i m e n t a l s i t u a t i o n s was s m a l l and t h e r e was no r e a s o n t o a n t i c i p a t e major d e v i a t i o n s from t h e e a r l i e r r a f f l e r e s u l t s . The comparison o f t h e v a l u e p l a c e d on a t i c k e t by s t u d e n t s r e q u i r e d t o pay f o r i t and o t h e r s o f f e r e d compensation i f t h e y would g i v e i t up once a g a i n d e m o n s t r a t e s t h a t an e x p e c t a t i o n o f e q u i v a l e n c e i s not w a r r a n t e d . Whereas n i n e t e e n o f t h i r t y - f o u r p a r t i c i p a n t s (56 p e r c e n t o f t h o s e i n t e r v i e w e d ) were u n w i l l i n g t o a c c e p t a c a s h o f f e r o f $0.50 i n exchange f o r t h e i r t i c k e t , o n l y n i n e o f t h i r t y - o n e p e r s o n s (29 p e r c e n t ) chose t o pay t h i s same amount i n o r d e r t o o b t a i n a t i c k e t . The d i f f e r e n c e i n r e s p o n s e s t o t h e two e v a l u a t i o n 2 measures shows an x o f 4.86, which w i t h one Degree o f Freedom i s s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . I l l W i l l i n g t o pay $0.50 W i l l i n g t o a c c e p t $0.50 T o t a l V a l u e > $0.50 V a l u e < $0.50 T o t a l 9 22 31 19 15 34 28 37 65 ( T e s t 29) = 4.86 A c t u a l r e s p o n s e s t o both t h e payment and compensation a l t e r n a t i v e s were v e r y s i m i l a r t o t h e answers which had p r e v i o u s l y been o b t a i n e d t o the companion h y p o t h e t i c a l q u e s t i o n s . The v a l u e s d e m o n s t r a t e d by p a r t i c i p a n t s ' a c t u a l and h y p o t h e t i c a l w i l l i n g n e s s t o pay were n e a r l y i d e n t i c a l , and the v a r i a t i o n i n r e s p o n s e s t o the compensation o f f e r was s t a t i s t i c a l l y i n s i g n i f i - c a n t . With a h i g h d e g r e e o f c o n f i d e n c e , t h e s e r e s u l t s a r g u e t h a t h y p o t h e t i c a l s c e n a r i o s can p r o v i d e an e x t r e m e l y c l o s e e s t i m a t e o f i n d i v i d u a l s ' a c t u a l ex- p r e s s e d v a l u e s and p r o v i d e e v i d e n c e f o r a p r e s u m p t i o n o f t r u s t i n the r e s u l t s o f c a r e f u l l y d e s i g n e d h y p o t h e t i c a l s u r v e y s . W i l l i n g t o pay, h y p o t h e t i c a l W i l l i n g t o pay, a c t u a l T o t a l V a l u e > $0.50 V a l u e < $0.50 T o t a l 9 24 33 22 31 ( T e s t 30) 18 46 64 .03 W i l l i n g t o a c c e p t , h y p o t h e t i c a l W i l l i n g t o a c c e p t , a c t u a l T o t a l V a l u e > $0.50 V a l u e < $0.50 T o t a l 17 11 28 19 36 15 26 34 ( T e s t 31) 62 x = .12 112 INFLUENCE OF FRAMING EFFECTS D e c i s i o n problems can be d e f i n e d i n terms o f t h e a c t s o r o p t i o n s between which a c h o i c e must be made, t h e s e t o f p o s s i b l e outcomes o r c o n s e - quences t h a t might a r i s e , and the c o n t i n g e n c i e s o r c o n d i t i o n a l p r o b a b i l i t i e s which r e l a t e a c t s and outcomes. The d e c i s i o n - m a k e r ' s c o n c e p t i o n o f t h e o p t i o n s , outcomes and p r o b a b i l i t i e s a s s o c i a t e d w i t h a p a r t i c u l a r c h o i c e c on- s t i t u t e s h i s o r h e r d e c i s i o n frame. The p a r t i c u l a r s t r u c t u r e o r frame which i s employed i n t h e e v a l u a t i o n o r any d e c i s i o n i s i n p a r t d e t e r m i n e d by s o c i a l norms and p e r s o n a l c h a r a c t e r i s t i c s o f t h e d e c i s i o n - m a k e r and i n p a r t c o n t r o l - l e d by t h e p a r t i c u l a r way i n which the problem i s f o r m u l a t e d . U t i l i t y t h e o r y , which has p r o v i d e d t h e b a s i s f o r most d e s c r i p t i v e and n o r m a t i v e t h e o r i e s o f d e c i s i o n making, has l i t t l e t o say about the r e l a t i o n o f p a r t i c u l a r d e c i s i o n frames t o p r e f e r e n c e s . In f a c t , a number o f d i f f e r e n t r e s e a r c h e r s have no t e d t h a t changes i n p r e s e n t a t i o n which a r e i r r e l e v a n t from t h e s t a n d p o i n t o f u t i l i t y t h e o r y can r e s u l t i n d r a m a t i c a l t e r a t i o n s i n i n d i v i d u a l s ' e x p r e s s e d v a l u e s ( S l o v i c , e t a l _ . , f o r t h c o m i n g ) . S i n c e most ques- t i o n s can be framed i n more than one way, i t f o l l o w s t h a t s u b t l e changes i n t h e way i n which t r a d e - o f f s a r e p h r a s e d may c o n s c i o u s l y o r u n i n t e n t i o n a l l y d i s t o r t s u r v e y measures o f p e o p l e s ' v a l u e s . I t t h e r e f o r e becomes i m p o r t a n t t o b e t t e r u n d e r s t a n d b o t h t h e i n f l u e n c e o f p a r t i c u l a r problem d e s c r i p t i o n s i n s u b s e q u e n t d e c i s i o n s and t h e mechanisms by which p e o p l e might adapt p a r t i c u - l a r d e c i s i o n f r a m e s . The s e c t i o n r e v i e w s a s e r i e s o f e x p e r i m e n t s which i n v e s t i g a t e t h e i n f l u e n c e o f a l t e r n a t i v e d e c i s i o n s t r u c t u r e s on e x p r e s s e d p r e f e r e n c e measures o f e n v i r o n m e n t a l q u a l i t y . The i n t e r p r e t a t i o n o f t e s t r e s u l t s r e l i e s h e a v i l y on t h e a n a l y s i s o f d e c i s i o n frames which i s p r o v i d e d by Kahneman and T v e r s k y ' s p r o s p e c t t h e o r y (Kahneman and T v e r s k y , 1979; T v e r s k y and Kahneman, 1981). 113 T h i s a p p r o a c h , d i s c u s s e d i n C h a p t e r IV, p r o v i d e s the b a s i s f o r an e x p l a n a t i o n o f a number o f s h i f t s i n p r e f e r e n c e s t h a t a r e n o t p r e d i c t e d by u t i l i t y t h e o r y . Most i m p o r t a n t l y , p r o s p e c t t h e o r y s t r e s s e s the v u l n e r a b i l i t y o f p e o p l e s ' v a l u e s and f e e l i n g s t o d i f f e r e n t e l i c i t a t i o n methods, and emphasizes t h e d i f f i c u l t i e s i n v o l v e d i n any attempt t o a c c u r a t e l y t r a n s l a t e i n d i v i d u a l s ' sub- j e c t i v e f e e l i n g s i n t o commensurate e x p r e s s i o n s o f v a l u e . T h r e e v e r s i o n s o f a payment q u e s t i o n and two v e r s i o n s o f a compensa- t i o n q u e s t i o n have been t e s t e d . A l l r e s p o n d e n t s r e c e i v e d the same i n t r o d u c - t i o n t o s t u d y o b j e c t i v e s and a s h o r t d e s c r i p t i o n o f p o t e n t i a l t r a d e - o f f s between i n c r e a s e d i n d u s t r i a l a c t i v i t y and the q u a l i t y o f t h e l o c a l e n v i r o n m e n t . P a r t i c i p a n t s i n t h e b a s i c payment e x p e r i m e n t were next asked i f t h e y would a g r e e t o pay an annual " e n v i r o n m e n t a l q u a l i t y t a x o f $10.00 i n o r d e r t o p r e v e n t a d e c l i n e i n a v e r a g e a r e a a i r q u a l i t y l e v e l s . " I f t h e y responded a f f i r m a t i v e l y , t h e y were asked whether t h e y would be w i l l i n g t o pay $25.00; i f t h e y responded n e g a t i v e l y , t h e y were" asked whether t h e y would be w i l l i n g t o pay an annual t a x o f $5.00. P a r t i c i p a n t s i n the b a s i c compensation e x p e r i m e n t were asked i f t h e y would a c c e p t a d e c r e a s e i n annual t a x e s i f as a r e s u l t a r e a a i r q u a l i t y l e v e l s would d e c l i n e ; payment o f f e r s o f $10.00, f o l l o w e d by $5.00 o r $25.00, were a g a i n employed. T e s t s 32 and 33 ( Q u e s t i o n n a i r e s l a  and l b , 2a and 2b) T h i s t e s t compares t h e b a s i c w i l l i n g n e s s t o pay f o r m a t w i t h a second v e r s i o n which asks t h e same q u e s t i o n but r e v e r s e s t h e o r d e r o f the e n v i r o n - mental q u a l i t y and payment c l a u s e s . In both c a s e s , the a c t i v i t y i t s e l f ( a s s i g n i n g monetary payments t o e n v i r o n m e n t a l q u a l i t y ) was u n f a m i l i a r and sub- j e c t s were a b l e t o l o o k a t and r e p e a t e d l y r e f e r t o t h e i r p e r s o n a l w r i t t e n copy o f t h e q u e s t i o n . 114 The two e v a l u a t i o n p r o c e d u r e s were e x p e c t e d t o be e q u i v a l e n t , p a r t i c u - l a r l y s i n c e a t the $25.00 l e v e l o f payment p a r t i c i p a n t s were one s t e p removed from t h e d i f f e r e n c e i n d e c i s i o n frames. However, f o r t y - o n e o f the f i f t y - s i x p a r t i c i p a n t s ( o r 73 p e r c e n t o f t h o s e sampled) were w i l l i n g t o pay a t l e a s t $25.00 t o p r e v e n t a d e c l i n e i n a i r q u a l i t y l e v e l s when the t a x c l a u s e p r e c e d e d t h e d e s c r i p t i o n o f t h e e n v i r o n m e n t a l change, w h i l e o n l y f o r t y - f i v e o f s e v e n t y - t h r e e r e s p o n d e n t s ( o r 62 p e r c e n t ) were w i l l i n g t o pay $25.00 when the o r d e r o f 2 t h e c l a u s e s was r e v e r s e d . With an x o f 1.94, t h i s d i f f e r e n c e i s not s t a t i s - t i c a l l y s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l , b u t even so i t i s t r o u b l i n g t h a t such a minor and t r a n s p a r e n t a l t e r a t i o n c o u l d r e s u l t i n d i f f e r e n t a v e r a g e r e s p o n s e s . V a l u e > $25 V a l u e < $25 T o t a l W i l l i n g t o pay $25, 41 15 56 b a s i c W i l l i n g t o pay $25, 45 28 73 ( T e s t 32) r e v e r s e d T o t a l 86 43 129 x 2 = 1.94 The same m a n i p u l a t i o n o f the compensation q u e s t i o n was a l s o t e s t e d , and t h e r e s u l t s i n t h i s c a s e p r e s e n t a much s t r o n g e r argument. Only f o u r o f t h e f i f t y - t w o p e r s o n s ( o r 8 p e r c e n t ) a n s w e r i n g t h e b a s i c compensation q u e s t i o n ( w i t h a t a x c l a u s e f i r s t ) were w i l l i n g t o a c c e p t $25.00 i n r e t u r n f o r a d e c l i n e i n a i r q u a l i t y , but f o u r t e e n o f t h e f i f t y - e i g h t r e s p o n d e n t s (24 p e r c e n t ) 2 t o t h e r e v e r s e d f o r m a t a c c e p t e d an i d e n t i c a l o f f e r . The x f o r t h e s e r e s u l t s , based on a 2x2 c o n t i n g e n c y t a b l e w i t h one Degree o f Freedom, i s 5.40, which i s s i g n i f i c a n t a t the 5 p e r c e n t l e v e l . 115 V a l u e > $25 V a l u e < $25 T o t a l W i l l i n g t o a c c e p t $25, b a s i c 48 4 52 W i l l i n g t o a c c e p t $25, r e v e r s e d 44 14 58 ( T e s t 33) T o t a l 92 18 110 x 2 = 5.40 One p o s s i b l e e x p l a n a t i o n o f t h e d i f f e r e n c e i s t h a t t h e s e r e s p o n s e s might r e f l e c t a v a r i a n t o f a n c h o r i n g and r e c e n c y b i a s e s i n which the l a s t i n f o r m a t i o n which i s p r e s e n t e d i s w e i g h t e d most h e a v i l y i n an i n d i v i d u a l ' s e v a l u a t i o n . A c c o r d i n g t o t h i s i n t e r p r e t a t i o n , r e s p o n d e n t s who a r e l e f t t h i n k - i n g about t h e e m o t i o n a l l y - c h a r g e d i s s u e o f e n v i r o n m e n t a l q u a l i t y (as i n t h e b a s i c q u e s t i o n s ) w i l l on a v e r a g e demonstrate a h i g h e r v a l u e than w i l l t h o s e p a r t i c i p a n t s who (as i n both r e v e r s a l s ) a r e l e f t c o n s i d e r i n g r e l a t i v e l y m i n o r changes i n t h e i r t a x b i l l . P a r t i c i p a n t s i n the payment a l t e r n a t i v e would t h e r e f o r e have matched t h e i r r e s p o n s e w i t h e i t h e r an o b l i g a t i o n t o pay ( i n the r e v e r s e d q u e s t i o n ) o r an o p p o r t u n i t y t o enhance e n v i r o n m e n t a l q u a l i t y ; s i n c e t h e l a t t e r i s more a t t r a c t i v e , e x p r e s s i o n s o f w i l l i n g n e s s t o pay a r e h i g h e r u s i n g t h e b a s i c q u e s t i o n . For p a r t i c i p a n t s i n t h e compensation a l t e r n a t i v e , the most r e c e n t i n f o r m a t i o n would have been e i t h e r the o f f e r o f a t a x s a v i n g ( i n t h e r e v e r s e d f o r m a t ) o r t h e p r o s p e c t o f a d e c l i n e i n e n v i r o n m e n t a l q u a l i t y : g i v e n the r e l a t i v e l y s m a l l amount o f the b r i b e and the r e s p o n s i b i l i t y a s s o c i a t e d w i t h p e r m i t t i n g e n v i r o n m e n t a l d e g r a d a t i o n , fewer p a r t i c i p a n t s a g r e e d t o a c c e p t compensation under the b a s i c q u e s t i o n s t r u c t u r e . T e s t 34 ( Q u e s t i o n n a i r e s l a and l c ) T h i s t e s t compares the b a s i c w i l l i n g n e s s t o pay q u e s t i o n w i t h a t h i r d v e r s i o n which a s k e d i n d i v i d u a l s i f t h e y were " w i l l i n g t o pay an annual t a x o f 116 $10.00 i n o r d e r t o m a i n t a i n p r e s e n t a r e a a i r q u a l i t y l e v e l s " (emphasis added). Both v a r i a n t s a s k e d s u b j e c t s t o weigh competing b e n e f i t s and c o s t s by compar- i n g a h y p o t h e t i c a l monetary payment and a p o t e n t i a l change i n e n v i r o n m e n t a l q u a l i t y . I f p o t e n t i a l outcomes a r e e v a l u a t e d i n terms o f f i n a l a s s e t s t a t e s , as s u g g e s t e d by e x p e c t e d u t i l i t y t h e o r y , t h e r e would be no r e a s o n t o s u s p e c t a s y s t e m a t i c d i f f e r e n c e i n t h e s e f o r m a l l y e q u i v a l e n t v e r s i o n s o f the payment q u e s t i o n . The a l t e r n a t i v e model o f p r o s p e c t t h e o r y (Kahneman and T v e r s k y , 1979) i n d i c a t e s t h a t e x p r e s s e d v a l u e s s h o u l d be h i g h e r f o r t h e f i r s t q u e s t i o n than f o r t h e t h i r d due t o t h e d i f f e r e n t shape o f t h e v a l u e f u n c t i o n f o r g a i n s and f o r l o s s e s . THe o p p o r t u n i t y t o " p r e v e n t a d e c l i n e " s u g g e s t s t h a t f u t u r e a i r q u a l i t y l e v e l s w i l l be lower u n l e s s some a c t i o n - - i n t h i s c a s e , a t a x p a y m e n t - i s t a k e n t o d a y . The f r a m i n g o f t h e f i r s t v e r s i o n t h e r e f o r e e n c o u r a g e s r e s - pondents t o assume a f i x e d r e f e r e n c e p o i n t a s s o c i a t e d w i t h p r e s e n t h i g h l e v e l s o f a i r q u a l i t y . In c o n t r a s t , t h e f r a m i n g o f t h e t h i r d q u e s t i o n encourages r e s p o n d e n t s t o adopt an a d j u s t e d r e f e r e n c e p o i n t a s s o c i a t e d w i t h f u t u r e lower l e v e l s o f a i r q u a l i t y and t o view t h e maintenance o f p r e s e n t c o n d i t i o n s as a r e l a t i v e g a i n . S i n c e the v a l u e f u n c t i o n p r o p o s e d by p r o s p e c t t h e o r y t s s t e e p e r f o r l o s s e s t h a n f o r g a i n s , we would a n t i c i p a t e t h a t an i n d i v i d u a l would e x h i b i t a g r e a t e r w i l l i n g n e s s t o pay i n o r d e r t o a v o i d a l o s s than t o m a i n t a i n t h e p r e s e n t s t a t e o f a i r q u a l i t y . R e s u l t s o f t h i s t r i a l s u p p o r t the i n t e r p r e t a t i o n s u g g e s t e d by p r o s p e c t t h e o r y and p r o v i d e a d d i t i o n a l e v i d e n c e t h a t what have f o r m a l l y been c o n s i d e r e d t o be i r r e l e v a n t v a r i a t i o n s i n the f r a m i n g o f t h e payment q u e s t i o n can l e a d t o s i g n i f i c a n t d i f f e r e n c e s i n s u b j e c t s ' e x p r e s s e d v a l u a t i o n s . As d e m o n s t r a t e d by T e s t 34, 46 p e r c e n t o f r e s p o n d e n t s (27 o f 59) r e f u s e d t o pay a t a x o f $25.00 i n o r d e r t o m a i n t a i n p r e s e n t a i r q u a l i t y l e v e l s w h i l e o n l y 27 p e r c e n t (15 o f 117 56) r e f u s e d t o pay t h e same amount i n o r d e r t o p r e v e n t t h e i r d e c l i n e . The 2 C h i - S q u a r e t e s t y i e l d s an x o f 4.54, which w i t h one Degree o f Freedom demon- s t r a t e s t h a t t h e d i f f e r e n c e i n the two e v a l u a t i o n approaches i s s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . V a l u e > $25 V a l u e < $25 T o t a l W i l l i n g t o pay $25, 41 15 56 p r e v e n t W i l l i n g t o pay $25, • 32 27 59 ( T e s t 34) m a i n t a i n T o t a l 73 42 115 x 2 = 4.54 An a d d i t i o n a l f a c t o r ( c o n s i d e r e d i n more d e t a i l i n the f i n a l s e c t i o n ) may a l s o be o p e r a t i v e i n t h a t t h e f i r s t q u e s t i o n a p p e a l s t o the s e l f - i m a g e o f th e r e s p o n d e n t and i n t r o d u c e s an i m p l i e d sense o f r e s p o n s i b i l i t y c o s t s . I f no a c t i o n i s t a k e n and a i r q u a l i t y l e v e l s do i n f a c t d e c l i n e , an i n d i v i d u a l who answers n e g a t i v e l y might w e l l f e e l some measure o f p e r s o n a l blame f o r h a v i n g p a s s e d up an e x p l i c i t o p p o r t u n i t y t o i n t e r v e n e . H i s o r her c h o i c e i s unam- b i g u o u s l y c l e a r : e i t h e r pay t h e t a x o r f a c e t h e consequences o f l o w e r a i r q u a l i t y l e v e l s . In t h e t h i r d q u e s t i o n the e f f e c t o f r e f u s a l i s not e x p l i c i t l y s t a t e d , and the q u e s t i o n does n o t p r e s e n t a c l e a r c a u s a l r e l a t i o n s h i p between a f a i l u r e t o m a i n t a i n p r e s e n t a i r q u a l i t y s t a n d a r d s and the l o w e r i n g o f f u t u r e l e v e l s . As a r e s u l t , t h e r e i s no c l e a r c a l l t o a c t i o n and hence r e s p o n s i b i l i t y c o s t s a s s o c i a t e d w i t h a n e g a t i v e r e s p o n s e a r e s u b s t a n t i a l l y l o w e r e d . The p r e s e n c e o f a weak c e r t a i n t y e f f e c t , by which outcomes p e r c e i v e d t o be p r o b a b l e a r e un d e r w e i g h t e d i n comparison w i t h c e r t a i n outcomes (Kahneman and T v e r s k y , 1979), may s e r v e t o reemphasize t h i s p o i n t . S i n c e t he f i r s t q u e s t i o n s u g g e s t s t h a t payment i s r e q u i r e d t o p r e v e n t a c e r t a i n d e c l i n e i n a i r 118 q u a l i t y l e v e l s and the t h i r d q u e s t i o n o n l y i m p l i e s t h a t a d e c l i n e might o c c u r , a c e r t a i n t y e f f e c t may i n c r e a s e s u b j e c t s ' r e l a t i v e w i l l i n g n e s s t o pay i n t h e f i r s t v e r s i o n o f t h e q u e s t i o n . INFLUENCE OF ANCHORING BIASES One o f t h e most i n t u i t i v e l y p l a u s i b l e c o g n i t i v e b i a s e s i s c o n c e r n e d w i t h the f i n d i n g t h a t a d j u s t m e n t s from an i n i t i a l o p i n i o n o r v a l u e t e n d t o be both i m p r e c i s e and i n s u f f i c i e n t . The c o n c e p t emphasizes t h e common-sense d i c t u m t h a t f i r s t i m p r e s s i o n s which a r e formed o f a p e r s o n , i d e a o r v a l u e a r e e x t r e m e l y i m p o r t a n t and f r e q u e n t l y prove s u r p r i s i n g l y r e s i s t a n t t o subsequent and even c o n f l i c t i n g i n f o r m a t i o n o r a l t e r n a t e p e r c e p t i o n s . T h e r e e x i s t s a n o t a b l e l a c k o f consensus among s u r v e y r e s e a r c h e r s r e g a r d i n g t h e s i g n i f i c a n c e o f a n c h o r i n g e f f e c t s o r t h e t y p e s o f i n i t i a t i v e s which c o u l d be u n d e r t a k e n t o m i n i m i z e t h e i . r i n f l u e n c e . As emphasized i n t h e d i s c u s s i o n o f C h a p t e r IV, t h i s d i s a g r e e m e n t i s i n p a r t r e l a t e d t o the d i f f e r - e n t c o n t e x t s i n which s u r v e y s o f non-market v a l u e s have been u n d e r t a k e n . To t h e e x t e n t t h a t p r e f e r e n c e s a r e w e l l - f o r m e d and c l e a r l y bounded, a n c h o r i n g e f f e c t s — o r , as t h e y a r e more i n f o r m a l l y known, s t a r t i n g p o i n t b i a s e s — s h o u l d e x e r t a minimal i n f l u e n c e on an i n d i v i d u a l ' s e x p r e s s e d v a l u e s . For example, s u r v e y measures o f r o u t i n e e x p e n d i t u r e s o r w e l l u n d e r s t o o d b e h a v i o r s h o u l d be r e l a t i v e l y f r e e o f a n c h o r i n g b i a s . On the o t h e r hand, i f i n d i v i d u a l s have n o t g i v e n much t h o u g h t t o an i s s u e o r a r e t r y i n g t o e v a l u a t e a good f o r t h e f i r s t t i m e , t h e i r s u s c e p t i b i l i t y t o t h e magnetism o f an i n i t i a l v a l u e o r p e r c e p t i o n i s l i k e l y t o i n c r e a s e s u b s t a n t i a l l y . T h i s s e c t i o n p r e s e n t s t h e r e s u l t s o f s e v e r a l e x p e r i m e n t s which have been c o n d u c t e d t o t e s t t h e i n f l u e n c e o f a n c h o r i n g b i a s e s . Two d i f f e r e n t s i t u a t i o n s were employed. In t h e f i r s t , p a r t i c i p a n t s were asked t o r e s p o n d 119 affirmatively or negatively to a proposed trade-off between a i r quality levels and a specified monetary payment or offer of compensation. In these experiments, which were primarily administered to university-level students, both goods under consideration are well understood but the required ex- change—weighing environmental quality against discrete amounts of money--is l i k e l y to be unfamiliar. In the second s i t u a t i o n , participants were asked i f they would agree to pay a designated sum of money in order to v i s i t or to help maintain the Provincial Museum in V i c t o r i a . Both of the payment v e h i c l e s — e i t h e r an addition to annual taxes or an entrance f e e — a r e f a m i l i a r , and the trade-off i t s e l f , which posits the need to pay money to help operate a Museum, i s also readily comprehensible. If starting point biases are to be found, t h e i r influence would therefore be least surprising in the questions concerned with environmental quality. The results of the tests provide strong evidence for the existence of pronounced anchoring biases, and this conclusion holds for both sets of experi- ments. In t o t a l , nine of the eleven tests which were conducted showed a s t a t i s t i c a l l y s i g n i f i c a n t influence of anchoring effects at the 5 percent l e v e l . Unfortunately, i t i s not easy to move from a demonstration of the problem to the development of a general strategy for improving survey design. The empirical evidence shows that when the same question i s asked using two different i n i t i a l values the results are l i k e l y to be substantially d i f f e r e n t , but no information i s thereby gained regarding which of the two questions provides a more accurate estimate of an individual's true value. At the . l e a s t , i t appears that survey approaches to the valuation of non-market goods should in most cases employ a range of values rather than a single "most reasonable" estimate which may only influence participants to confirm the 120 p r e j u d i c e s o f t h e i n v e s t i g a t o r . A t the most, i t would be advantageous t o a l s o p h r a s e the same e v a l u a t i o n q u e s t i o n i n a number o f d i f f e r e n t ways and t o employ an i n t e r a c t i v e d e b r i e f i n g o r d e b i a s i n g p r o c e d u r e whereby r e s p o n d e n t s c o u l d be h e l p e d t o g a i n an improved p e r s p e c t i v e on and u n d e r s t a n d i n g o f t h e i r answers. These c o n c e r n s w i l l be d i s c u s s e d more c l o s e l y as p a r t o f C h a p t e r V I I . T e s t 35 ( Q u e s t i o n n a i r e s a. and a..) T h i s t e s t compares two v e r s i o n s o f a q u e s t i o n which asks p a r t i c i p a n t s t o e s t i m a t e the economic v a l u e o f t h e B.C. P r o v i n c i a l Museum. F o l l o w i n g a s h o r t d e s c r i p t i o n o f Museum s e r v i c e s and s u r v e y o b j e c t i v e s and s e v e r a l i n t r o - d u c t o r y demographic q u e s t i o n s , r e s p o n d e n t s a r e asked i f t h e y would be w i l l i n g t o pay a s p e c i f i e d e n t r a n c e f e e i n o r d e r t o v i s i t t h e Museum. In one c a s e , p a r t i c i p a n t s who a r e w i l l i n g t o pay a $3.00 e n t r a n c e f e e a r e asked i f t h e y would pay $5.00, w h i l e t h o s e who r e f u s e a r e asked i f t h e y would pay $1.00. In t he o t h e r c a s e p a r t i c i p a n t s a r e f i r s t asked i f t h e y would pay $4.00; t h o s e r e s p o n d i n g a f f i r m a t i v e l y a r e then asked t o pay $5.00, w h i l e t h o s e who r e f u s e a r e asked i f t h e y would pay $3.00. The second t r i a l employs a h i g h e r i n i t i a l v a l u e , and i f an a n c h o r i n g b i a s i s e v i d e n t r e s p o n d e n t s s h o u l d be encouraged t o pay a h i g h e r a d m i s s i o n f e e than i n t h e f i r s t c a s e . In a d d i t i o n , t h e h i g h e r s t a r t i n g amount used i n the s e c o n d t e s t d e c r e a s e s t h e d i f f e r e n c e between the i n i t i a l and s u b s e q u e n t v a l u e s . I t was f e l t t h a t more p e o p l e might be encouraged t o pay $5.00, and fewer r e f u s e t o pay $3.00, f o l l o w i n g an i n i t i a l r e f e r e n c e p o i n t o f $4.00 r a t h e r t h a n $3.00. T h i s i s e x a c t l y what i s f o u n d , and the l e v e l o f v a r i a t i o n i n answers t o t h e two a p p r o a c h e s i s s u r p r i s i n g l y l a r g e . While o n l y 31 p e r c e n t o f r e s - pondents (49 o f 158) who were asked t h e f i r s t q u e s t i o n were w i l l i n g t o pay an 121 e n t r a n c e f e e o f $5.00, 47 p e r c e n t (23 o f 49) o f a l l t h o s e who were f i r s t a s ked i f t h e y would pay $4.00 a g r e e d t o pay $5.00. The x f o r t h i s d i f f e r e n c e i s 4.25, which w i t h one Degree o f Freedom i s s i g n i f i c a n t a t the 5 p e r c e n t l e v e l . V a l u e > $5 V a l u e < $5 T o t a l W i l l i n g t o pay, i n i t i a l 49 • 109 158 v a l u e o f $3.00 W i l l i n g t o pay, i n i t i a l 23 26 49 ( T e s t 35) v a l u e o f $4.00 T o t a l 72 135 207 x 2 = 4.25 T e s t s 36, 37 and 38  Q u e s t i o n n a i r e s b., b.., and b...) The t e s t s which a r e d i s c u s s e d i n t h i s s e c t i o n compare the j o i n t e f f e c t s o f d i f f e r e n t s t a r t i n g p o i n t s and d i f f e r e n t b i d i n c r e m e n t s on p a r t i c i - p a n t s ' e x p r e s s e d v a l u e s . The t h r e e q u e s t i o n n a i r e s a r e s i m i l a r t o t h o s e j u s t d i s c u s s e d but i n t h i s c a s e o n - s i t e v i s i t o r s were asked t h e i r w i l l i n g n e s s t o make an i n c r e a s e d t a x payment i n o r d e r t o ensu r e " t h a t t he p r e s e n t q u a l i t y o f Museum e x h i b i t s i s m a i n t a i n e d . " T h r e e d i f f e r e n t l e v e l s o f payment were t e s t e d , w i t h a b a s i c q u e s t i o n a g a i n employing sums o f $3.00, $5.00, and $1.00 and two v a r i a n t s p r e s e n t i n g payment l e v e l s o f $5.00, $10.00 and $3.00 and $10.00, $20.00 and $5.00. T e s t s f o r t h e s i g n i f i c a n c e o f a n c h o r i n g e f f e c t s were u n d e r t a k e n a t the $5.00 payment l e v e l , which i s common t o a l l t h r e e t r i a l s but v a r i e s i n a r e l a t i v e sense a c c o r d i n g t o the c o n t e x t which i s p r o v i d e d by the accompanying sums. In the f i r s t c a s e , a $5.00 payment i s t h e l a r g e s t amount under c o n s i - d e r a t i o n and i s l i k e l y t o be viewed i n r e l a t i o n t o the i n i t i a l v a l u e o f $3.00. In t h e second t e s t $5.00 r e p r e s e n t s t he s t a r t i n g sum and might w e l l be v a l u e d a t a r e l a t i v e l y l o w e r l e v e l when viewed e i t h e r i n i s o l a t i o n (as the f i r s t v a l u e 122 c o n s i d e r e d ) o r i n r e f e r e n c e t o the subsequent o p t i o n o f a $10.00 payment. In the t h i r d i n s t a n c e t he $5.00 payment c h o i c e comes l a s t and may be seen as a l a s t chance by t h o s e h o l d i n g a p o s i t i v e v a l u e but who were u n w i l l i n g t o pay th e h i g h e r amounts ( t h a t i s , $10.00 o r $20.00). T h i s i n t e r p r e t a t i o n s u g g e s t s t h a t more p e o p l e s h o u l d be w i l l i n g t o pay an annual t a x o f $5.00 t o m a i n t a i n the q u a l i t y o f Museum e x h i b i t s i n the second and t h i r d v e r s i o n s t h a n i n the f i r s t , and a l s o t h a t e x p r e s s e d v a l u e s might be h i g h e r f o r the f i n a l t e s t , when a $10.00 sum i s t h e s t a r t i n g payment, than when the i n i t i a l amount i s $5.00. Va1ue> $5 V a l u e < - $5 T o t a l W i l l i n g t o pay, i n i t i a l 78 27 105 v a l u e o f $3.00 W i l l i n g t o pay, i n i t i a l 30 3 33 ( T e s t 36) v a l u e o f $5.00 T o t a l 108 30 138 x 2 = 4.12 The c o n f i r m a t i o n o f t h i s h y p o t h e s i s i s p r e s e n t e d i n t e s t s 36, 37 and 38. Whereas tw e n t y - s e v e n o f the 105 p a r t i c i p a n t s (26 p e r c e n t ) r e f u s e d t o make a $5.00 payment f o l l o w i n g an i n i t i a l v a l u e o f $3.00, o n l y t h r e e o u t o f t h i r t y - t h r e e r e s p o n d e n t s (9 p e r c e n t ) r e f u s e d t o pay an equal amount when the $5.00 payment o p t i o n was p r e s e n t e d f i r s t and f o l l o w e d by a $10.00 c h o i c e . S i m i l a r l y , o n l y two o u t o f a t o t a l o f t h i r t y - t h r e e s u b j e c t s (6 p e r c e n t ) r e f u s e d t o make a $5.00 payment a f t e r f i r s t b e i n g p r e s e n t e d w i t h t h e o p p o r t u n i t y t o pay e i t h e r $10.00 o r $20.00. The x f o r both comparisons i n d i c a t e s a s t a t i s t i c a l l y s i g - n i f i c a n t d egree o f d i f f e r e n c e , and argues i n f a v o r o f the p r e s e n c e o f a d e f i n - i t e a n c h o r i n g b i a s . F or t e s t 36, which compares the f i r s t and second v e r s i o n s 2 o f t h i s q u e s t i o n , t he x i s 4.12; f o r t e s t 37, which compares the f i r s t and 2 t h i r d e x p e r i m e n t s , t he x i s 5.77: both a r e s i g n i f i c a n t a t the 5 p e r c e n t 123 l e v e l V a l u e > $5 V a l u e <, $5 T o t a l W i l l i n g t o pay, i n i t i a l 78 27 105 v a l u e o f $3.00 W i l l i n g t o pay, i n i t i a l 31 2 33 ( T e s t 37) v a l u e o f $10.00 T o t a l 109 29 138 x 2 = 5.77 T e s t 38 compares t h e r e s p o n s e s g i v e n t o the second and t h i r d w i l l i n g - ness t o pay v a r i a n t s , which employ r e s p e c t i v e s t a r t i n g v a l u e s o f $5.00 and $10.00. The impact o f an a n c h o r i n g b i a s i s a g a i n s u b s t a n t i a l : w h i l e n e a r l y h a l f (16 o f 33, o r 48 p e r c e n t ) o f the p a r t i c i p a n t s i n the f i r s t e x p e r i m e n t r e f u s e d t o make a $10.00 annual t a x payment, o n l y f i v e o f t h i r t y - t h r e e r e s p o n - dents (15 p e r c e n t ) i n t h e second t e s t were u n w i l l i n g t o pay $10.00 t o m a i n t a i n t h e q u a l i t y o f Museum e x h i b i t s . The x f o r t h i s v a r i a t i o n i s 8.45, which w i t h one Degree o f Freedom i s s i g n i f i c a n t a t the 5 p e r c e n t l e v e l , and ar g u e s p e r - s u a s i v e l y t h a t t h e d i f f e r e n c e i n the two a p p r o a c h e s — w h i c h were i d e n t i c a l i n a l l a s p e c t s e x c e p t the s p e c i f i e d l e v e l s o f p a y m e n t — i s r e l i a b l y a l t e r i n g t h e e x p r e s s e d p r e f e r e n c e s o f s u r v e y p a r t i c i p a n t s . V a l u e > $10 V a l u e < $10 T o t a l W i l l i n g t o pay, i n i t i a l 17 16 33 v a l u e o f $5.00 W i l l i n g t o pay, i n i t i a l 28 5 33 ( T e s t 38) v a l u e o f $10.00 T o t a l 45 21 66 x 2 = 8.45 124 T e s t s 39, 40 and 41 ( Q u e s t i o n n a i r e s JTT j..» T h i s s e t o f q u e s t i o n s was d e s i g n e d t o e s t i m a t e t h e v a l u e o f the Museum t o p r o v i n c i a l r e s i d e n t s who were n o t a t . p r e s e n t v i s i t i n g , and who might n e v e r v i s i t , t h e Museum e x h i b i t s i n p e r s o n . B r i e f d e s c r i p t i o n s o f the Museum and s u r v e y o b j e c t i v e s were p r e s e n t e d t o r e s p o n d e n t s , who were then asked t o s t a t e t h e i r w i l l i n g n e s s t o make an i n c r e m e n t a l t a x payment " t o en- s u r e t h a t t h e Museum e x h i b i t s - r e m a i n open t o v i s i t o r s and p r e s e r v e ( s ) y o u r o p p o r t u n i t y t o v i s i t t h e Museum a t some f u t u r e t i m e . " Responses t o t h r e e v e r s i o n s o f the q u e s t i o n , s p e c i f y i n g h y p o t h e t i c a l t a x payments o f between $1.00 and $20.00 and s t a r t i n g p o i n t s o f $3.00, $5.00 and $10.00, were o b t a i n e d i n each o f f o u r B r i t i s h Columbian c i t i e s : V i c t o r i a , V a n c o u v e r , C h i l l i w a c k and N e l s o n . The payment l e v e l s employed i n t h e s e t h r e e t e s t s o f non- u s e r s were i d e n t i c a l t o t h o s e p r e s e n t e d i n t h e p r e c e d i n g t h r e e t r i a l s ( t e s t s 36, 37 and 3 8 ) , and i n t h i s c a s e t h e i n f l u e n c e o f a s t a r t i n g p o i n t b i a s i s found t o be even s t r o n g e r . Whereas 34 p e r c e n t (67 o u t o f 200) o f t h e i n d i v i d u a l s p a r t i - c i p a t i n g i n t h e b a s i c t e s t (which p r e s e n t e d r e s p e c t i v e payment l e v e l s o f $3.00, $5.00 and $1.00) were not w i l l i n g t o pay $5.00, o n l y 17 p e r c e n t (26 o f 152) and 16 p e r c e n t (17 o f 103) o f r e s p o n d e n t s i n the second and t h i r d v e r - s i o n s o f t h e e x p e r i m e n t r e f u s e d t o make a $5.00 payment. T e s t s 39 and 40 p r e s e n t t h e s e r e s u l t s and de m o n s t r a t e t h e s u b s t a n t i a l d i f f e r e n c e s i n p a r t i c i - 2 p a n t s ' e x p r e s s e d v a l u e s . The x s t a t i s t i c f o r t h e 2x2 c o n t i n g e n c y t a b l e 2 d e r i v e d from t e s t 39 i s 12.01, w h i l e t he x f o r t e s t 40 i s 9.87; both v a l u e s a r e s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . The e v i d e n c e i s e q u a l l y c l e a r t h a t t h e d i f f e r e n c e i n i n d i v i d u a l s ' a v e r a g e e x p r e s s e d v a l u e s between s t a r t i n g p o i n t s o f $5.00 and $10.00 i s a l s o s i g n i f i c a n t . S i x t y - n i n e o f 152 r e s p o n d e n t s (45 p e r c e n t o f t h o s e sampled) were 125 w i l l i n g t o pay $10.00 when a $5.00 payment o p t i o n was g i v e n f i r s t compared to s i x t y - s e v e n o f 103 p a r t i c i p a n t s (65 p e r c e n t ) who were w i l l i n g t o pay 2 $10.00 when i t was p r e s e n t e d as t h e s t a r t i n g v a l u e . The x f o r t h i s v a r i a t i o n i s 9.58, which i s a g a i n s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l and p r o v i d e s a d d i - t i o n a l e v i d e n c e o f the i m p o r t a n t i n f l u e n c e o f s t a r t i n g p o i n t s on i n d i v i d u a l s ' e x p r e s s e d v a l u e s . W i l l i n g t o pay, i n i t i a l v a l u e o f $3.00 W i l l i n g t o pay, i n i t i a l v a l u e o f $5.00 T o t a l W i l l i n g t o pay, i n i t i a l v a l u e o f $3.00 W i l l i n g t o pay, i n i t i a l v a l u e o f $10 T o t a l V a l u e > $5 133 126 259 V a l u e > $5 133 86 219 V a l u e d $5 T o t a l 67 26 93 67 17 84 200 152 ( T e s t 39) 352 V a l u e ^ $5 T o t a l 200 303 x = 12.01 103 ( T e s t 40) x c = 9.87 W i l l i n g t o pay, i n i t i a l v a l u e o f $5.00 W i l l i n g t o pay, i n i t i a l v a l u e o f $10 T o t a l V a l u e > $10 69 67 136 Va l u e < $10 T o t a l 83 36 119 152 103 ( T e s t 41) 255 x^ = 9.58 126 T e s t s 42 and 43 ( Q u e s t i o n n a i r e s l a and 4b; 4c and 4d) These two t e s t s both examine the i n f l u e n c e o f a n c h o r i n g b i a s e s i n t h e c o n t e x t o f r e s p o n s e s g i v e n t o the U n i v e r s i t y o f B r i t i s h Columbia s u r v e y s o f i n d i v i d u a l s ' e x p r e s s e d w i l l i n g n e s s t o pay i n o r d e r t o p r e v e n t a d e c l i n e i n av e r a g e a i r q u a l i t y l e v e l s . The i n t r o d u c t o r y d e s c r i p t i o n s o f s u r v e y o b j e c - t i v e s and t h e r e m i n d e r t h a t e n v i r o n m e n t a l p r o t e c t i o n i s n o t c o s t l e s s were i d e n t i c a l i n a l l f o u r q u e s t i o n n a i r e s , as was the form o f the subsequent v a l u a - t i o n q u e s t i o n s . The o n l y d i f f e r e n c e i n t h e f o u r v e r s i o n s was i n the s p e c i f i e d l e v e l s o f payment open t o each r e s p o n d e n t . T e s t 42 compares t h e r e s p o n s e s which were g i v e n t o a q u e s t i o n n a i r e p r o p o s i n g an i n i t i a l payment o f $10.00 w i t h t h e v a l u e s e x p r e s s e d by p a r t i c i - p a n ts i n r e f e r e n c e t o a q u e s t i o n n a i r e which employed a s t a r t i n g v a l u e o f $100.00. T e s t r e s u l t s a r e shown f o r a $25.00 l e v e l o f payment. In the f i r s t c a s e , where $25.00 r e p r e s e n t s t h e maximum payment c h o i c e and f o l l o w s a s t a r t - i n g v a l u e o f $10.00, f o r t y - o n e o f f i f t y - s i x r e s p o n d e n t s (73 p e r c e n t ) were w i l l i n g t o pay a t l e a s t $25.00 t o p r e v e n t a p o s s i b l e d e c l i n e i n a i r q u a l i t y w i t h i n t h e a r e a . When $25.00 appeared as t h e f i n a l payment o p t i o n , f o l l o w i n g an i n i t i a l v a l u e o f $100.00 and a maximum c h o i c e o f $200.00, t w e n t y - e i g h t o f t h e t h i r t y p e r s o n s c o m p l e t i n g t he q u e s t i o n n a i r e (93 p e r c e n t ) s t a t e d t h e i r w i l l i n g n e s s t o pay t h i s amount. A C h i - S q u a r e t e s t o f t h e s e r e s u l t s y i e l d s an 2 x o f 4.92, which w i t h one Degree o f Freedom i s s i g n i f i c a n t a t the 5 p e r c e n t l e v e l . T h i s r e s u l t i s s i m i l a r t o t h a t o f p r e v i o u s t e s t s , where the c o n t e x t w i t h i n which a p a r t i c u l a r sum was p r e s e n t e d t o r e s p o n d e n t s appears t o make i t seem r e l a t i v e l y h i g h e r o r l o w e r . What i s s u r p r i s i n g i s n o t so much t h a t $5.00 l o o k s b i g when compared t o $3.00 and sm a l l when compared t o $20.00 but t h a t the v a l u e which i n d i v i d u a l s p l a c e on t h e goods under c o n s i d e r a t i o n i s 127 a p p a r e n t l y so m a l l e a b l e , so e a s i l y swayed by a change i n the p o i n t o f r e f e r - e n c e . V a l u e > $25 V a l u e < $25 T o t a l W i l l i n g t o pay, i n i t i a l 41 15 56 v a l u e o f $10 W i l l i n g t o pay, i n i t i a l 28 2 30 ( T e s t 42) v a l u e o f $100 T o t a l 69 17 86 x 2 = 4.92 T e s t 43 compares t h e r e s u l t s o f two a d d i t i o n a l e x p e r i m e n t s which were c o n d u c t e d u s i n g s t a r t i n g p o i n t s o f '$100.00 and $10.00. In the f i r s t t r i a l , t h o s e r e s p o n d e n t s who were w i l l i n g t o pay $100.00 were asked i f t h e y would pay $200.00, w h i l e t h o s e who r e f u s e d were p r e s e n t e d w i t h an o p p o r t u n i t y t o pay a $50.00 annual t a x . In t h e second v e r s i o n , p a r t i c i p a n t s who a g r e e d t o pay $10.00 were asked i f t h e y would pay $50.00, w h i l e t h o s e r e f u s i n g were g i v e n t h e o p t i o n o f p a y i n g $5.00. The t e s t r e s u l t s , c o n d u c t e d a t the s h a r e d payment l e v e l o f $50.00, add t o t h e e v i d e n c e i n s u p p o r t o f a s u b s t a n t i a l a n c h o r i n g b i a s . When t h e $50.00 payment l e v e l was p r e s e n t e d l a s t , f o l l o w i n g p r e v i o u s amounts o f two and f o u r t i m e s as much, t w e n t y - f o u r o f t h i r t y - t w o p a r t i c i p a n t s (75 p e r c e n t o f t h o s e sampled) a g r e e d t o pay t h i s amount i n o r d e r t o p r e v e n t a p o s s i b l e d e c l i n e i n a i r . q u a l i t y l e v e l s . However, when $50.00 r e p r e s e n t e d t he maximum payment o p t i o n o n l y n i n e o f twenty-seven r e s p o n d e n t s (33 p e r c e n t ) were w i l l i n g t o pay 2 t h i s amount. With an x v a l u e o f 10.31, t h e d i f f e r e n c e i n r e s u l t s p r o v e s t o be s t a t i s t i c a l l y s i g n i f i c a n t a t the 5 p e r c e n t l e v e l . 128 V a l u e > $50 V a l u e < $50 T o t a l W i l l i n g t o pay, i n i t i a l v a l u e o f $100, 24 8 32 W i l l i n g t o pay, i n i t i a l v a l u e o f $10 ' 9 18 27 ( T e s t 43) T o t a l 33 26 59 x 2 = 10.31 T e s t 44 ( Q u e s t i o n n a i r e s 2a and 2d) T h i s t e s t p r o v i d e s an e s t i m a t e o f r e s p o n d e n t s ' w i l l i n g n e s s t o a c c e p t c o m p e n s a t i o n i n r e t u r n f o r p e r m i t t i n g l o w e r a v e r a g e l e v e l s o f a i r q u a l i t y . Two d i f f e r e n t payment o p t i o n s were a g a i n p r e s e n t e d . The f i r s t employed an i n i t i a l v a l u e o f $10.00; i f i t was a c c e p t a b l e p a r t i c i p a n t s were asked i f t h e y would s e t t l e f o r a $5.00 payment, w h i l e i f i t was c o n s i d e r e d t o be i n s u f f i - c i e n t p a r t i c i p a n t s were o f f e r e d $25.00. The second v e r s i o n s t a r t e d w i t h an o f f e r o f $100.00 i n compensation and then e i t h e r i n c r e a s e d i t t o $200.00 o r d e c r e a s e d i t t o $25.00. A $25.00 payment i s t h u s viewed as e i t h e r t he minimum o r t h e maximum sum o f f e r e d t o r e s p o n d e n t s i n t r a d e f o r the l o w e r l e v e l o f a i r q u a l i t y . In t h i s c a s e t he d i f f e r e n c e i n r e s u l t s a t $25.00 i s n o t s i g n i f i c a n t . The r e a s o n i s i m m e d i a t e l y c l e a r from t he r e s p o n s e s shown i n t e s t 44: such a h i g h p r o p o r t i o n o f p a r t i c i p a n t s (92 p e r c e n t o f t h o s e sampled) were u n w i l l i n g t o a c c e p t a $25.00 payment even w i t h a s t a r t i n g o f f e r o f $10.00 t h a t any v a r i a t i o n i n r e s p o n s e s due t o the p r e s e n c e o f an a n c h o r i n g b i a s i s r e n d e r e d i n v i s i b l e . As a r e s u l t , t h e 95 p e r c e n t o f r e s p o n d e n t s (36 o f 38) who r e f u s e d t o a c c e p t $25.00 i n compensation a f t e r f i r s t b e i n g o f f e r e d $100.00 i s n o t s i g n i f i c a n t l y d i f f e r e n t from t h e p e r c e n t a g e which r e f u s e d f o l l o w i n g an o f f e r o f $10.00: whether the $25.00 payment appea r s r e l a t i v e l y l a r g e r o r s m a l l e r i s a p p a r e n t l y u n i m p o r t a n t , because e i t h e r way i t i s viewed as i n s u f f i c i e n t 129 c o m p e n s a t i o n . V a l u e > $ 2 5 V a l u e <• $25 T o t a l W i l l i n g t o a c c e p t , i n i t i a l v a l u e o f $10 48 4 52 W i l l i n g t o a c c e p t , i n i t i a l v a l u e o f $100 36 2 38 ( T e s t 44) T o t a l 84 6 90 x T e s t s 45 and 46 ( Q u e s t i o n n a i r e s c.  and c . . . , e. and e..) These two t e s t s e v a l u a t e t h e p o s s i b l e i m p o r t a n c e o f an a n c h o r i n g ' ; e f f e c t when i t i s conveyed t h r o u g h a frame o f r e f e r e n c e which i s o s t e n s i b l y p r o v i d e d t o a s s i s t t h e p a r t i c i p a n t i n bounding t h e v a l u e p l a c e d on the good o r a c t i v i t y under c o n s i d e r a t i o n . The ap p r o a c h has been employed i n a number o f s t u d i e s ( f o r example, Meyer, 1974) which seek t o e s t i m a t e t h e v a l u e o f non- market goods, and i t i s f r e q u e n t l y p r o p o s e d as a way t o r e n d e r an u n f a m i l i a r and r e l a t i v e l y complex p r o c e s s — p l a c i n g a monetary v a l u e on an u n p r i c e d g o o d - l e s s f o r m i d a b l e . Each o f t h e t e s t s , which e s t i m a t e the economic v a l u e o f the P r o v i n c i a l Museum, compare two r e f e r e n c e s c a l e s which d i f f e r i n the mean v a l u e p r e s e n t e d t o r e s p o n d e n t s . In t h e f i r s t e x p e r i m e n t , i n d i v i d u a l s were p r o v i d e d w i t h a l i s t showing t he a p p r o x i m a t e a d u l t e n t r a n c e p r i c e s which must be p a i d t o v i s i t s i x o t h e r r o u g h l y comparable e x h i b i t s i n North A m e r i c a . They were then a s k e d , i n l i g h t o f t h e s e r e f e r e n t p r i c e s , whether t h e y would be w i l l i n g t o pay an a d m i s s i o n f e e o f $3.00 t o v i s i t t h e P r o v i n c i a l Museum. Those r e s p o n d i n g a f f i r m a t i v e l y were asked i f t h e y would a l s o a g r e e t o pay a $5.00 e n t r a n c e f e e , w h i l e t h o s e who r e f u s e d were asked i f t h e y would i n s t e a d pay $1.00. Four o f th e s i x p r i c e s i n c l u d e d f o r r e f e r e n c e , w i t h a mean v a l u e o f a p p r o x i m a t e l y 130 $3.75, were shown i n t h e same o r d e r on both v e r s i o n s , w h i l e t he r e m a i n i n g two v a l u e s were p l a c e d a t e i t h e r t h e h i g h (mean v a l u e o f about $9.00) o r low (mean v a l u e o f $2.00) e n d p o i n t s o f t h e r e s u l t i n g s c a l e . Even when t h e l e v e l s o f payment p r e s e n t e d t o p a r t i c i p a n t s a r e i d e n t i - c a l and the v a l u a t i o n p r o c e s s ( p a y i n g a v i s i t t o a Museum) i s r e a d i l y compre- h e n s i b l e , r e s p o n s e s t o t h e two q u e s t i o n s p r o v e d t o be s i g n i f i c a n t l y d i f f e r e n t . When t h e l o w e r p r i c e s were i n c l u d e d i n t h e r e f e r e n c e s c a l e o n l y e l e v e n o f the f o r t y - s e v e n p e r s o n s q u e s t i o n e d (23 p e r c e n t ) were w i l l i n g t o pay a $5.00 e n t r a n c e f e e t o v i s i t t h e Museum, w h i l e s e v e n t y - s i x o f 161 i n d i v i d u a l s (47 per- c e n t ) r e s p o n d i n g t o the h i g h e r s c a l e a g r e e d t o pay a $5.00 a d m i s s i o n p r i c e . 2 The x f o r t h i s d i f f e r e n c e i s 8.55, which means t h a t t h e r e s u l t s a r e s i g n i f i - c a n t a t the 5 p e r c e n t l e v e l . V a l u e > $5 V a 1 u e < $5 T o t a l W i l l i n g t o pay, h i g h 76 85 161 " r e f e r e n c e s c a l e W i l l i n g t o pay, low 11 36 47 ( T e s t 45) r e f e r e n c e s c a l e T o t a l 87 121 208 x 2 = 8.55 The second e x p e r i m e n t employed the same two r e f e r e n c e s c a l e s but t h i s t i m e asked v i s i t o r s t o s t a t e t h e maximum f e e t h a t t h e y would be w i l l i n g t o pay i n o r d e r t o v i s i t t h e P r o v i n c i a l Museum. The d i f f e r e n c e i n the two s e t s o f r e s p o n s e s i s a g a i n s u b s t a n t i a l . Whereas o n l y t h i r t e e n o f f i f t y - f i v e r e s p o n - dents (24 p e r c e n t ) were w i l l i n g t o pay a $5.00 a d m i s s i o n f e e when the l o w e r s c a l e was employed, n e a r l y h a l f o f t h o s e q u e s t i o n e d (33 o f 68 p e r s o n s , o r 49 p e r c e n t ) a g r e e d t o pay t h i s p r i c e when the frame o f r e f e r e n c e which was p r o v - i d e d showed a h i g h e r a v e r a g e v a l u e . The x o f 8.11 f o r t h i s d i f f e r e n c e i s 131 a g a i n s i g n i f i c a n t a t the 5 p e r c e n t l e v e l , and p r o v i d e s a d d i t i o n a l e v i d e n c e t h a t the impact o f a p a r t i c u l a r r e f e r e n c e s c a l e on r e s p o n d e n t s ' e x p r e s s e d v a l u e s can be s u b s t a n t i a l . A l t h o u g h t h e c o n c e p t o f p r o v i d i n g some s o r t o f a n a l o g o u s framework as an a i d i n the measurement o f non-market v a l u e s i s ap- p e a l i n g , t h e s e r e s u l t s s u g g e s t t h a t i t may prove i m p o s s i b l e t o do so w i t h o u t s i m u l t a n e o u s l y b i a s i n g p a r t i c i p a n t s ' r e s p o n s e s . V a l u e > $5 V a l u e < $5 T o t a l W i l l i n g t o pay, h i g h 33 35 68 r e f e r e n c e s c a l e W i l l i n g t o pay, low 13 52 65 ( T e s t 46) r e f e r e n c e s c a l e T o t a l 46 87 133 x 2 = 8.11 T e s t 47 ( Q u e s t i o n n a i r e s l e and I f ) The f i n a l t e s t i n t h i s s e c t i o n a g a i n l o o k s a t t h e e f f e c t o f a n c h o r i n g b i a s e s i n t h e c o n t e x t o f a l t e r n a t i v e frames o f r e f e r e n c e . P a r t i c i p a n t s were asked i f t h e y would pay an annual t a x i n o r d e r t o p r e v e n t a d e c l i n e i n a i r q u a l i t y l e v e l s , and were p r o v i d e d w i t h a s h o r t l i s t o f s i x items which showed t h e a v e r a g e annual monetary payments made by B r i t i s h Columbian r e s i d e n t s f o r a number o f goods and s e r v i c e s . These e x p e n d i t u r e s were a r r a n g e d i n two columns o f t h r e e e n t r i e s e a c h : one column, w i t h a mean v a l u e o f about $86, was u t i l i z e d i n both v e r s i o n s , w h i l e t h e second column p r e s e n t e d t h r e e items w i t h a mean v a l u e o f e i t h e r $26.00 o r $215.00. The s p e c i f i e d l e v e l s o f payment and t h e s e q u e n c i n g o f payment o p t i o n s were the same i n both q u e s t i o n n a i r e s . The i n f l u e n c e o f the frame on p a r t i c i p a n t s ' e x p r e s s e d v a l u e s was a g a i n s u b s t a n t i a l , a l t h o u g h t h e e f f e c t o f a n c h o r i n g b i a s e s i s n o t as s t r o n g as i n t h e p r e c e d i n g examples. T w e n t y - t h r e e o f t h e t h i r t y - f o u r p e r s o n s (68 p e r c e n t ) 132 who r e c e i v e d t h e h i g h e r s e t o f r e f e r e n c e e x p e n d i t u r e s were w i l l i n g t o pay a t l e a s t $25.00 i n o r d e r t o p r e v e n t a d e c l i n e i n a i r q u a l i t y , w h i l e o n l y twenty- two o f t h e f o r t y - f i v e p a r t i c i p a n t s (49 p e r c e n t ) i n the e x p e r i m e n t which employed l o w e r r e f e r e n c e v a l u e s were w i l l i n g t o pay as much. T h i s d i f f e r e n c e i n e x p r e s s e d v a l u e s y i e l d s an x s t a t i s t i c o f 2.73, which i s not s i g n i f i c a n t a t t h e 5 p e r c e n t l e v e l . I t i s i n t e r e s t i n g t o n ote t h a t t h e s e r e s u l t s a r e t h e r e f o r e l e s s p e r s u a s i v e t h a n t h o s e p r e s e n t e d f o r e i t h e r o f the r e f e r e n c e t e s t s c o n d u c t e d a t the P r o v i n c i a l Museum: both t h e g r e a t e r magnitude o f the monetary d i f f e r e n c e s i n the a l t e r n a t i v e frames and the l e s s f a m i l i a r n a t u r e o f t h e exchange under c o n s i d e r a t i o n s u g g e s t e d t h a t the e v i d e n c e o f a n c h o r i n g b i a s e s m i ght i n s t e a d have been s t r o n g e r i n t h i s c o m p a r i s o n . V a l u e > $25 V a l u e < $25 T o t a l W i l l i n g t o pay, h i g h 23 11 34 r e f e r e n c e s c a l e W i l l i n g t o pay, low 22 23 45 ( T e s t 47) r e f e r e n c e s c a l e T o t a l 45 34 79 x 2 = 2.73 INFLUENCE OF PROCESS VARIABLES T h i s s e c t i o n d i s c u s s e s t h e r o l e p l a y e d by a number o f p r o c e s s v a r i a - b l e s , n o t a b l y r e s p o n s i b i l i t y c o s t s and r e g r e t , i n t h e v a l u a t i o n o f non-market goods. Emphasis i s t h e r e f o r e p l a c e d on t h e p s y c h i c c o s t s and b e n e f i t s o f an a c t i o n r a t h e r than the a c t u a l good which i s a c q u i r e d o r t h e s p e c i f i c a c t i v i t y i n which one i s engaged. These c o n s i d e r a t i o n s a r e o m i t t e d from most models o f d e c i s i o n - m a k i n g and c e r t a i n l y f a i l t o a p p e a r i n most d e s c r i p t i o n s o f economic b e h a v i o r , which i n s t e a d f o c u s on consumption p o s s i b i l i t i e s which a r i s e i n r e l a t i o n t o t a n g i b l e goods. P r o c e s s o r manner v a r i a b l e s i n s t e a d 1 3 3 s t r e s s t h a t t h e p a r t i c u l a r way i n which an a c t i o n i s p r e s e n t e d o r p e r f o r m e d - - t h e "how" o f a c h o i c e r a t h e r than s i m p l y t h e "what"--may e x e r t a s i g n i f i c a n t i n f l u e n c e on an i n d i v i d u a l ' s e x p r e s s e d p r e f e r e n c e s and o b s e r v e d b e h a v i o r . A sense o f t h e s e c o n c e r n s i s conveyed by the term " t r a n s a c t i o n s c o s t s , " which ap p e a r s f r e q u e n t l y i n both l e g a l and economic d i s c u s s i o n s o f such t o p i c s as t h e a p p r o p r i a t e n e s s o f a l t e r n a t i v e l i a b i l i t y r u l e s o r r e s o u r c e a l l o c a t i o n frameworks. Yet i n most c a s e s t r a n s a c t i o n s c o s t s remain vague and g e n e r a l , r e f e r r i n g t o f i n a n c i a l c o s t s o f unknown magnitude which a r e a s s o c i - a t e d w i t h g e t t i n g l a r g e numbers o f p e o p l e t o g e t h e r o r e x c l u d i n g f r e e r i d e r s who n e g l e c t o r r e f u s e t o pay f o r some good. The term " p s y c h i c c o s t s " has a l s o been employed a t t i m e s t o r e f e r t o such a n t i - r a t i o n a l i s t phenomenon as the w i d e l y o b s e r v e d r e l e v a n c e o f h i s t o r i c a l , o r sunk, c o s t s . However, n e i t h e r t r a n s a c t i o n n o r p s y c h i c c o s t s s u c c e s s f u l l y convey the r i c h n e s s and s i g n i f i c a n c e o f b e h a v i o r a l c o n c e r n s which a r e a s s o c i a t e d w i t h t h e way i n which a consumption d e c i s i o n i s u n d e r t a k e n o r a v o i d e d : j u s t as I may donate t o c h a r i t i e s f o r a l t r u i s t i c r e a s o n s so I may be hoping t o d e c r e a s e my t a x e s , i n f l a t e my ego o r r e l i e v e a sense o f a c u t e embarrassment r e l a t e d t o my r e l a t i v e p o s i t i o n o f w e a l t h . The d i s c u s s i o n o f C h a p t e r IV has s t r e s s e d t h a t whereas u t i l i t y t h e o r y e v a l u a t e s end s t a t e s o r f i n a l a s s e t p o s i t i o n s , p r o s p e c t t h e o r y emphasizes t h a t outcomes may more commonly be e x p r e s s e d as p o s i t i v e o r n e g a t i v e d e v i a t i o n s from a n e u t r a l r e f e r e n c e p o i n t . T h i s p r o v i d e s a c o n c e p t u a l b a s i s f o r the e v a l u a t i o n o f p r o c e s s c o n s i d e r a t i o n s such as r e g r e t o r r e s p o n s i b i l i t y t h r o u g h impacts on t h e r e f e r e n c e outcome. For example, I may i n i t i a l l y have been v e r y happy t o r e c e i v e a B on an e x a m i n a t i o n which I f e a r e d I might have f a i l e d ; however, a f t e r h e a r i n g t h a t my f r i e n d and s t u d y p a r t n e r r e c e i v e d an A, my j o y may t u r n t o c o n s t e r n a t i o n and a sense o f d i s a p p o i n t m e n t i n my p e r f o r m a n c e . 134 My r e f e r e n c e p o s i t i o n t h e r e f o r e i n c l u d e s elements o f both g a i n and l o s s , and t h e u t i l i t y o f the end state--my d i s s a t i s f a c t i o n a t r e c e i v i n g a mark which exceeds my i n i t i a l e x p e c t a t i o n — c a n o n l y be u n d e r s t o o d i n terms o f the chang- i n g d e f i n i t i o n o f my r e f e r e n c e outcome. R o u t i n e and e a s i l y comprehended p u r c h a s e s — b u y i n g a l o a f o f bread o r a bus t i c k e t — w o u l d n o t n o r m a l l y i n v o l v e an i n d i v i d u a l i n the s u b j e c t i v e w e i g h i n g o f p r o c e s s c o n s i d e r a t i o n s . As d e c i s i o n s become l e s s f a m i l i a r and more complex, however, t h e s i g n i f i c a n c e o f p r o c e s s v a r i a b l e s w i l l g e n e r a l l y i n c r e a s e . Even i f t h e impetus f o r t h e b e h a v i o r i s the same, t h e r e i s a s i g - n i f i c a n t d i f f e r e n c e between the p e r s o n who debate's whether t o save s t r i n g o r p a p er bags i n c a s e t h e y a r e someday needed and the s o c i e t y which d e b a t e s whether t o p r e s e r v e w i l d e r n e s s a r e a s o r t h r e a t e n e d s p e c i e s o f p l a n t s . D e c i s i o n s i n v o l v i n g a p o t e n t i a l l o s s o f l i f e , d e g r a d a t i o n o f h e a l t h o r change i n e n v i r o n m e n t a l q u a l i t y form p a r t o f a l a r g e group o f c h o i c e s which i n d i v i d - u a l s may be asked t o make i n the c o n t e x t o f t h e v a l u a t i o n o r d i s t r i b u t i o n o f a wide range o f non-market goods. In such c a s e s , the p a r t i c u l a r way i n which a q u e s t i o n i s p h r a s e d o r a c h o i c e i s p r e s e n t e d t o an i n d i v i d u a l may g i v e r i s e t o c o s t s o r b e n e f i t s which have l i t t l e o r nothing.'to do w i t h the s p e c i f i c t r a d e - o f f which i s o s t e n s i b l y under c o n s i d e r a t i o n . In f a c t , most a c t i o n s o r c h o i c e s i n v o l v e an i n v i s i b l e c o s t i n t h a t what i s done may i n h i n d s i g h t prove t o be l e s s than p e r f e c t l y c o r r e c t . Thus t h e p e r s o n who s e l l s h i s o r her house j u s t b e f o r e a p r i c e i n c r e a s e f e e l s worse than someone e l s e who, due t o l a c k o f money o r i n i t i a t i v e , s i m p l y l e t s the chance pass by: t h e l o s t o p p o r t u n i t y f o r f i n a n c i a l g a i n i s more e a s i l y imag- i n e d by t h e f i r s t i n d i v i d u a l s i n c e he o r she a c t i v e l y chose a change i n c i r - c umstances. T h i s c h a r a c t e r i s t i c e n c o u r a g e s t h e mainten