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Valuing non-market goods : an analysis of alternative approaches Gregory, Robin Scott 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 Columbia,  1974  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in THE FACULTY OF GRADUATE STUDIES ,"  (Interdisciplinary Studies)  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 to the r e q u i r e d standard  THE UNIVERSITY OF BRITISH COLUMBIA dune 1982 . Q) Robin S c o t t G r e g o r y , 1982  In p r e s e n t i n g  t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of  requirements f o r an advanced degree a t the  the  University  o f B r i t i s h Columbia, I agree t h a t the L i b r a r y s h a l l make it  f r e e l y a v a i l a b l e f o r reference  and  study.  I further  agree t h a t p e r m i s s i o n f o r e x t e n s i v e copying o f t h i s t h e s i s f o r s c h o l a r l y purposes may  be granted by the head o f  department or by h i s or her  representatives.  my  It is  understood t h a t copying or p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l gain  s h a l l not be  allowed without my  permission.  Department of The U n i v e r s i t y of B r i t i s h 1956 Main Mall Vancouver, Canada V6T 1Y3 D  a  t  e  < T w  V**  Columbia  . 1***2,  written  ii  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 a p p r o a c h e s which have been used t o e s t i m a t e the 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 conventional  p r i v a t e markets.  of i n d i v i d u a l s ' expressed  Experimental  evidence  i s o b t a i n e d from  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 ment.  surveys  environ-  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 s e d , 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 the c o m p a r i s o n 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 linquished.  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 p r o a c h e s  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 cases 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 the s i z e o f the 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  perceived  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 , regret or other process  considerations.  Empirical evidence  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 are used t o v a l u e non-market goods.  These  i n c l u d e the 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 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 .  framing  In each case the a n a l y s i s  iii of i n d i v i d u a l s ' responses  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 .  iv  TABLE OF CONTENTS ABSTRACT  i i  LIST OF TABLES AND FIGURES  vi  Chapter I. II.  INTRODUCTION  1  EVALUATION CONCERNS IN THE MEASUREMENT OF NON-MARKET VALUES Measures o f Economic V a l u e C o n c e p t u a l M e a s u r e s o f Consumer's S u r p l u s E m p i r i c a l Measures o f Consumer's S u r p l u s 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  III. IV.  ..  4 4 9 15 21  ...  SURVEY MEASURES OF NON-MARKET ENVIRONMENTAL VALUES BEHAVIORAL CONCERNS IN THE MEASUREMENT OF NON-MARKET VALUES  29 . .  The P e r c e p t i o n o f U t i l i t y The S i g n i f i c a n c e o f B i a s Motivational Biases . . S t r a t e g i c Bias Information Bias Hypothetical Bias Cognitive Biases . . Representative Bias A v a i l a b i l i t y Bias Anchoring Bias Overconfidence Bias Contextual Bias Debiasing Strategies V.  RESEARCH DESIGN AND SURVEY PROCEDURES  46 46 53 55 56 57 58 62 63 64 64 65 66 67  .....  S e l e c t e d Problem A r e a s D i f f e r e n c e s i n Payment and C o m p e n s a t i o n Measures o f V a l u e 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 Comparison o f H y p o t h e t i c a l and A c t u a l Responses I n f l u e n c e o f Framing E f f e c t s Influence of Anchoring Biases Influence o f Process Variables  70 .  70 71 71 72 72 73 73  V  Survey Instrument C h a r a c t e r i s t i c s S e l e c t i o n o f Survey Q u e s t i o n s Surveys C o n d u c t e d a t the U n i v e r s i t y o f B r i t i s h Columbia Surveys Conducted a t the P r o v i n c i a l Museum VI.  ...  ANALYSIS OF SURVEY RESULTS D i f f e r e n c e s i n Payment and Compensation Measures o f V a l u e ... C o 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 . . Comparison o f H y p o t h e t i c a l and A c t u a l Responses I n f l u e n c e o f Framing E f f e c t s Influence of Anchoring Biases Influence of Process V a r i a b l e s  VII.  SURVEY IMPLICATIONS AND FUTURE RESEARCH PRIORITIES D i s p a r i t i e s i n Payment and Compensation Measures o f V a l u e ... Reasons f o r the D i s p a r i t y Size Legitimacy Substitutes Process Considerations Implications of the D i s p a r i t y 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 General C o n c e r n s 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 . . . 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 . . V a l u a t i o n Approach Payment Measure Motivational Biases Cognitive Biases Framing E f f e c t s Process Considerations  73 76 76 78 80 80 95 103 112 118 132 141 142 144 144 145 149 151 154 157 160 161 161 162 162 163 163 164  REFERENCES  165  APPENDIX  171  vi  LIST OF TABLES AND  FIGURES  Tables 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 in Hypothetical Lotteries . .  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 to P a r t i c i p a t e in Actual Lotteries  106  Figures 1  C l a s s e s o f Economic Goods  4  2  Consumer's S u r p l u s M e a s u r e s :  P r i c e Change  11  3  Consumer's S u r p l u s M e a s u r e s :  Q u a n t i t y Change  11  4  A H y p o t h e t i c a l Value F u n c t i o n  51  5  A Hypothetical Weighting  51  Function  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 c a n 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 purchase 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 through the 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 t h 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 t h e 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  values associated with the natural environ-  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  threatened environments  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 approaches  compared on the 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  hypothet-  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 the 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 . Experimental e a r l i e r research.  r e s u l t s are presented f o l l o w i n g a c r i t i c a l review of 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 the 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 compensation  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 a d v a n c e d , 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 , the s i g n i f i c a n c e of e n t i t l e -  ments and the 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 the 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 the 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  values are  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 approaches  evaluation  a r e reviewed 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 .  Particular  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 communication of systematically d i s t o r t e d expressions of preference. 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 were employed.  which  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 ,  then 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 of s i g n i f i c a n c e are included  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 value.  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 reviews  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 I I 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 c o n s u m p t i o n 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 c a n  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 imply i t s p r o v i s i o n t o o t h e r s , then i t i s u t i l i z e d as a p r i v a t e good (Box a ) . nonexclusion  exclusion rivalry non-rivalry Figure 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 output i s sold i n w e l l - e s t a b l i s h e d markets.  Exclusion i s not possible i n the  c a s e o f t r u e common-property r e s o u r c e s (Box b) b u t r i v a l r y among u s e r s — w h e r e c o n s u m p t i o n by one person 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 t h e 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 source 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 . emphasized,  As a number o f a u t h o r s have  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 c a n 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: tion.  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-  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 economic 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 competitive basis.  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 h e v a l u e o f a good.  Increases i n welfare that are  d e r i v e d by i n d i v i d u a l s c a n 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 c a n 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 .  If benefits  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 t h e a s k i n g p r i c e o f t h 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  the 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 t h e 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 heuristics. T h r e e m a j o r 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 t h e v a l u e o f goods which a r e n o t bought and s o l d i n c o n ventional markets.  W h i l e 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 ,  b o t h 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 t h e 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 t h e a s s u m p t i o n 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 c o m p a r a b l e 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 d e g r e e 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 c o m p a r i s o n 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 summat 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 . 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 a r e w i d e l y employed t o e s t i m a t e t h e 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 h e C l a w s o n - K n e t s c h 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 1966)  Knetsch,  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, t h e 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 t h e  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 h e 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 obs 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 t h e 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 h e 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 t h e l e g a l and i n s t i t u t i o n a l arrangements use.  which have been d e v e l o p e d t o govern t h e i r  The approach 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 e c o n o m i c , 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 dards (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 h e 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 of s o c i a l preference.  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 values. E x p r e s s e d p r e f e r e n c e approaches  represent a third 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 t h e 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 through 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  preferences  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 to s o c i e t y from 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).  Results  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 to 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 proposed 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).  Information  o b t a i n e d d i r e c t l y from 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 (Berger,  preferences  1977). C e r t a i n advantages 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 to 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 :  the 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 ;  respondents  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 obj 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 behavior. 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 thought 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 to 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 to 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 reminder.  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 ambiguous. CONCEPTUAL MEASURES OF CONSUMER'S SURPLUS Q u e s t i o n s r e l a t i n g to 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 generations of economists i n great 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 approaches 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 measuring 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 to 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 c a n i n t u r n r e s u l t from 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 c h a n g e s ) 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  prob-  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 contemp 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 t h e 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 markets—the  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 not 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 dered ( 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 t h e (Mars 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 m e a s u r e s , as d e l i n e a t e d by  H i c k s (1939), c a n 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 ) of t h e a s s o c i a t e d monetary sums w i l l l e a v e t h e 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 t h e 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. at X.  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  than  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 ($)  Figure 2 Consumer's S u r p l u s Measures:'  P r i c e Change  Wealth o r Income ($)  ~"  a,  '  <a  t  V  *•  Figure 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 taxed 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 the consumer's c o m p e n s a t i n g v a r i a t i o n (CV) and c o m p e n s a t i n g s u r p l u s (CS).  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 to 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 v i e w , 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 are not p o s s i b l e . 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  Instead, a central  (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 the a v a i l a b l e q u a n t i t y o f some good  from  to  and the consumer i s thus a b l e t o s h i f t  to 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 . For 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 c o m p e n s a t i o n t h a t must be p a i d f o r an i n d i v i d ual to 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 the 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 to 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 quantity (price) decreases,  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 associated with 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 the  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 the 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 (Mishan,  1976).  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 Conventional  economic t h e o r y suggests 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 the case o f p r i c e i n c r e a s e s (or 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 the e n v i r o n m e n t a l X^ has i n c r e a s e d ; i f the consumer were i n s t e a d s h i f t i n g f r o m  good  to  due t o  a d e c l i n e i n the 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 the 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 item i s r e l a t i v e l y uni 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 the two a p p r o a c h e s are expected cant.  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 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 . " Following t h i s assumption of equivalence,  s e v e r a l o f the key  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 to d e r i v e o f one measure from s l i g h t m a n i p u l a t i o n s s i s presented  o f the o t h e r .  theoreestimates  The i n f l u e n t i a l  analy-  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 u p p e r 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 c o m p e n s a t i o n 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 the 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 examination. 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 facilities.  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 the a b s e n c e 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 exceed f i v e percent.  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 the consumer s u r p l u s o p t i o n s "appear to be small 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 the 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  is  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 are l a r g e , does conventional  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 the measures m i g h t prove  t o be s u b s t a n t i a l .  Bockstael  and M c C o n n e l l ( 1 9 8 0 ) , f o r example, a r g u e t h a t  W i l l i g ' s c a l c u l a t i o n s are 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 publ 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 are small 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 s s u m p t i o n s 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 the 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 to pay  but  not 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 tend to 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  provided only s l i g h t assistance in  p r e d i c t i n g how p e o p l e w i l l r e s p o n d to 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 , the b e s t t h e y can o f f e r i s the 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 the 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 and b u y i n g p r i c e s s h o u l d not be assumed i n p r a c t i c e . (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 d i f f e r e n c e s between the two  Bockstael  of s e l l i n g  and McConnell  to say whether l a r g e  [buying 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 the f i e l d , who  continue  to 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 not 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  they  m i g h t 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  preferences:  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 , our 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 the 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 our 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 the d i f f e r e n c e between the ' 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 to accept' approaches. EMPIRICAL MEASURES OF CONSUMER'S SURPLUS The w i d e s p r e a d a d h e r e n c e 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 the more r e m a r k a b l e i n l i g h t o f the g r o w 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 a p p r o a c h e s a r e not 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.  Evidence 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 the v a l u e o f market e n v i r o n m e n t a l  goods.  non-  The well-known e a r l y study by Hammock and Brown  (1974), f o r example, which a t t e m p t e d 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 . E n v i r o n m e n t Canada ( S i n c l a i r , 1975)  A 1975 study  by  r e p o r t e d t h a t the median c o m p e n s a t i o n  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 the c o r r e s p o n d i n g pay t o p r e s e r v e the a r e a .  Banford  measure o f t h e i r maximum w i l l i n g n e s s t o (1979/80) f o u n d 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 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  the  Brookshire  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  welfare  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 compensation i n return f o r diminished v i s i b i l i t y .  For 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 to 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 tax payment" whereas CS q u e s t i o n s p r e s e n t e d the o f f e r o f a b r i b e .  Either inter-  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 ' 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 maximum) e x p r e s s i o n s  resentment  ( t h a t i s , l e s s than  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  attempt r e s u l t i n g i n large or i n f i n i t e bids.  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  authors  c i t e the f a c t t h a t " s l i g h t l y over 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 the s u r v e y i n s t r u ment." (Rowe e_t a l _ . , 1980:9). 3  This finding 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 the d i r e c t c o m p a r i s o n o f ES and CS measures. Brookshire  (1980) imply t h a t n o n - c o o p e r a t i o n  W h i l e Rowe, d'Arge and  i s due to 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 type 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  quality)  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 the 1980 s t u d y s t a t e s t h a t the 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 perhaps makes l i t t l e s e n s e .  4  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 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 .  prove  In f a c t , t h e r e  i s a nagging 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 ) non-respondents  outnumber  respondents. 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  through  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 .  Resulting differ-  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 novel 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 to be asymetric. 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 .  Hypothetical  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 per 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 cash 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 p o n d e n t s ' 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 . Despite t h i s accumulating  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 c o m p e n s a t i n g v a r i a t i o n , most  researchers  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 o m p e n s a t i o n 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 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 be c a u t i o n e d  variation  example, a g r e e t h a t e c o n o m i s t s s h o u l d  " a g a i n s t the r e a d y 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  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 "  and  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 .  Since  the 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 small 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 biases for t h e i r p r i n c i p a l explanatory  support.  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 the 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 seems l i k e l y . "  instrument  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 :  while  they  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 " they e m p h a t i c a l l y s t a t e t h a t "our r e s u l t s do not 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  overlooked."  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 the r o b u s t n e s s  begun t o q u e s t i o n  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  exploring  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 m i g h t l i e behind r e p o r t e d d i f f e r e n c e s i n payment and c o m p e n s a t i o n r e s p o n s e s .  Gordon and K n e t s c h ( 1 9 7 9 : 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  that  observed  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 " biases.  income e f f e c t o r r e s p o n s e  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 conclusion of equivalence  between payment and c o m p e n s a t i o n measures  " c a n n o t 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  data."  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  large  v a r i a t i o n s i n e q u i v a l e n t and c o m p e n s a t i n g 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 o m p e n s a t i o n 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 action.  of  In a r e c e n t d i s c u s s i o n p a p e r , K n e t s c h (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  c h o o s e 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 cash payment o r the a c c e p t a n c e o f a c t u a l monetary c o m p e n s a t i o n . 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 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 buying p r i c e was  to  significantly  l e s s than the r e p o r t e d measure o f a v e r a g e c o m p e n s a t i o n demanded.  Furthermore,  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 small magnitude o f the v a l u e a t i s s u e ( w h i c h , as Knetsch d r y l y  observes,  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 comp 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 the f o r m e r viewed as l o s s e s  and the 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 argues t h a t goods i n c l u d e d i n a person'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 not 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  effect." 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 the 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 the o p p o r t u n i t y t o purchase 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 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 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  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  attempt  subsequent  chapters. 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 the 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 e n o r m o u s l y 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 resource p o l i c y options.  A second q u e s t i o n asks what measures o f s o c i a l wel-  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 . Three b a s i c approaches economists.  t o the 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  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  the e a r l y p a r t o f t h i s c e n t u r y .  His r u l e i s s t r a i g h t f o r w a r d :  a policy  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 person 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 party. 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 compensation:  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.  Maximization of the  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 not  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 actual Pareto  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 analysis.  S c i t o v s k y (1941), 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  not 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. s u g g e s t e d t h a t compensation  He t h e r e f o r e  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 argued t h a t adopted p o l i c i e s must a l s o improve income d i s t r i b u tion.  Haveman and Weisbrod  unambiguously  (1975) asked whether a p r o j e c t c o u l d be s a i d t o  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 w o u l d 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  (that i s , that losers should  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 to 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 approach 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 problems, 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 net benef 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 unadorned 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 approaches 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 net 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 a c k n o w l e d g e d , 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 presence of 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 preference 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 not depend on the assignment o f l e g a l rights.  Only 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 the 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 compensat i o n f o r t h e l o s s o f one w h i c h 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 e n t i t l e m e n t s g e n e r a l l y emerge.  regarding  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 the a f f e c t e d r e s o u r c e uses. 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  Moreover, i n a  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 enf 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 o m p e n s a t i o n 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 the second o f my two q u e s t i o n s e n t e r s the 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 ? 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 o v e r n e d e i t h e r by  The  property  r u l e s , u n d e r 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 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  value  p r a c t i c e of both 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 the 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 w h e t h e r 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 for its loss.  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 the s t a t u s quo has been taken  as a b a s e l i n e , i n c r e a s e s i n the 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 comp 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  at issue. 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  Hicks-Kaldor  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 w h e t h e r 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 the a d v a n t a g e s t o t h o s e 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).  who  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 the 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 ,  the 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 distribution of entitlements. M o r e o v e r , 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 type 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 a b s e n c e 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 the 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  the l o g i c r e l i e s on e c o n o m i c s , the a c t u a l d e c i s i o n r e g a r d i n g the 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 c o n s i s t e n t with Coase  1  by the s t a t e o r the c o u r t s .  This i s also  p r e s c r i p t i o n , w h i c h c a l l e d f o r the 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 attempt 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 the 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 ing 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 (1975), have argued t h a t i n the 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 assignment  s h o u l d f a v o r the 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  from 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 the b a s i s o f the p r e s u m p t i o n 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 the 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 w i s h e d t o impose a move from the 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 agents ( H e l l e r , 1976):  an e f f i c i e n t change would then 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 x c e e d e d the EV r e c e i v e d by the r e s o u r c e owners.  F i s h e r and  K r u t i l l a a r g u e t h a t the 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 contemplated;  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 time.  Alterna-  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 , w h i c h 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 o n - u s e r s who m i g h t 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 , the accompanying measure o f b e n e f i t s would a g a i n be the amount o f compensation r e q u i r e d to induce c u r r e n t b e n e f i c i a r i e s to w i l l i n g l y forego 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 i q u e 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 nor c l e a r l y p e r t i n e n t t o the 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 environmental  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 than 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 tion of a potential welfare 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 m a i n t e n a n c e o f an un-  h i n d e r e d v i e w , 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 obs t r u c t e d o r when a h i g h - r i s e apartment and t h e s e a .  i s b u i l t between my l i v i n g r o o m window  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 the legal d e f i n i t i o n of 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 amenity 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 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 .  economists.  First, i findividuals  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 w h e t h e r o r not a p a r t i c u l a r w i l d e r n e s s environment  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 Chapter VI. Secondly,  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 n o t a person has a l e g a l r i g h t t o p r e v e n t s o m e t h i n g 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 c o m p e n s a t i o n demanded s h o u l d be employed as a measure o f v a l u e .  Yet t h i s approach en-  c o u r a g e s t h o s e i n t e r e s t s which a r e n o t g r a n t e d l e g a l 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 emotional  recognition—altruism, 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 h e d e c i s i o n c a l c u l u s .  Both examples a r g u e  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 t h e o b j e c t i v e change i n status o f a property 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 with the perc 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 n o t 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  or  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 b u t t h e p o s s i b l e c o n f l i c t between t h e a l l o c a t i o n o f r i g h t s under t h e 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 t h e w i n n e r s c o u l d  compensate t h e 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 t h e 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 t h e w i n n e r s from a change o f s t a t u s may a l s o be those who s e e t h e m s e l v e s as l o s e r s i f no. change i s made.  M o r e o v e r , t h e 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 time.  As T r i b e (1973)  and o t h e r s have e m p h a s i z e d , t h e 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  of inalienable  entitlements) might r e s u l t i n a s u b s t a n t i a l increase i n net s o c i a l welfare.  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 e c o n o m i c s 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 c o m p e n s a t i o n 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 , are  d i f f e r e n c e s i n t h e two measures r e a l i n t h e s e n s e t h a t they 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 procedures?  measurement  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 behind t h e  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  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 in the following  chapters.  e v i d e n c e w i l l be  have presented  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 t h e 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 , a n d 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 sional and p o l i t i c a l audience.  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 or 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 t h e f a c e o f a p r o 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 first  approach  u t i l i z e s o b s e r v e d changes i n t h e 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 a p p r o a c h  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 .  Since hedonic  measures do n o t 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 a n d c a n n o t r e v e a l d i f f e r e n c e s i n payment a n d c o m p e n s a t i o n  p r i c e s , I w i l l only review studies  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 insufficient.  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 r o a c h asks s u b j e c 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 p r o p o s e d monetary payment, w i t h t h e level v a r i e d across respondents.  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 the 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 Journal of Environmental  Economics and Management o v e r the 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 responses to photographic  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 .  This i s  accomplished  by c o m p a r i n g 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 d e v e l o p m e n t i n t h e region.  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 or t h e i r w i l l i n g n e s s to accept compensation i n r e t u r n f o r lower 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 , the consumer (whether buying  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 the 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 c o m p e n s a t i n g s u r p l u s ( r a t h e r than 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 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 the a e s t h e t i c e n v i r o n m e n t a l  (1974),  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 type 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 the 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 or p o l i c y sense).  T h i s h y p o t h e t i c a l payment was then i n c r e a s e d o r  decreased  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 est 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 (1976), which a g a i n used a b i d d i n g game a p 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 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.  which  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 to 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 ) , the 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 of i n d i v i d u a l to 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 assertions.  Three major issues r e q u i r e f u r t h e r d i s c u s s i o n before 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 , the 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 the two is fundamentally  d i f f e r e n t . A l t h o u g h both asked r e s p o n d e n t s  studies  t o compare  t h r e e c o n d i t i o n s o f the v i s u a l e n v i r o n m e n t , the 1974 s t u d y used the 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 asked r e s p o n d e n t s  t o s t a t e the  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 the most p r i s t i n e s i t u a t i o n  and were asked i f they 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 the framework e s t a b l i s h e d by p r o s p e c t  theory,  t h e s e two f o r m u l a t i o n s o f the 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 : w i l l be t e s t e d i n Chapter  the p o s s i b i l i t y  VI.  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 obtained  i n the 1974 and 1976 s t u d i e s l e d t o a f a l s e s e n s e o f s e c u r i t y i n the 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 the 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 , the 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 .  Yet no systema-  t i c c o m p a r i s o n 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 with the s p e c i f i c wording of survey questions, f r u s t r a t i o n with the m u l t i p l e bidding procedure photographic  i t s e l f ("so he d o e s n ' t b e l i e v e me..."), the use o f  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 not 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 not 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 s t r u c t u r a l l i m i t a t i o n s of the p a r t i c u l a r survey format which i s employed to accurately express t h e i r preferences  i n monetary terms.  T h i r d , the three problem areas r a i s e d i n the second a r t i c l e were addressed much l e s s v i g o r o u s l y , and c e r t a i n l y l e s s on the basis of actual survey responses, than i n d i c a t e d by the authors.  Three discrepancies are  b r i e f l y noted: 1.  The t e s t f o r s t r a t e g i c 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 ence.  i t s e l f assumed to have magically escaped any biasing i n f l u -  While the t e s t i s i n t u i t i v e l y appealing, the authors f a i l e d to  e s t a b l i s h any f i r m c r i t e r i a f o r s t r a t e g i c behavior beyond (a) t h e i r l a r g e l y subjective evaluation of the r e l a t i v e (to what?) f l a t n e s s 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 q u i c k l y c a l c u l a t e the amount that t h e i r bid should deviate from the mean response so as to s u c c e s s f u l l y a f f e c t 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.  S u r p r i s i n g l y , the authors  state that the approach was selected not on the basis of i t s d e s c r i p t i v e 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 i n t e r p r e t i v e context.  Since the selected f u n c t i o n a l  forms assume that the two measures of consumer's surplus are i d e n t i c a l i n  In t h i s l i g h t , the report that the one s t r a t e g i c bidder was an economics professor i s more a source of concern i l l u m i n a t i n g inappropriate t e s t 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 nor 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 .  Yet 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  questions—were  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 comp 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 Brookshire.  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 ) compensation  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 comparison 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 discussed i n Chapter 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 unpubl i s h e d s t u d y by Blank e t al_. (1978), 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 from 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 confronted with a contingent 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 developers)  increased (decreased)  their  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 hypot 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 present a i r q u a l i t y standards.  S i n c e most r e s p o n d e n t s d i d n o t 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 , the authors concluded negligible effect.  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  This r e s u l t i s not s u r p r i s i n g , i n part since  behavior  such a s 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 e n c o u r a g e 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 f r o m , t h e supposed mean b i d o f t h e sample.  However,  several aspects o f the t e s t procedure f a i l to i n s p i r e confidence. 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 respondents 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 to 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 two-third'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 bids and t h e r e f o r e not 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 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 .  study),  Third, the test  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 h e r b i d ("I'm n o t as dumb as t h e y t h i n k ! " ) t e l l i n g us a n y t h i n g a b o u t 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 . evidence  without  F i n a l l y , no  i s p r e s e n t e d t o suggest 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 ( a n d 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 a s 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 -  mation) 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 b u t was n o t 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 t h e 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 i n c r e m e n t.s . 5 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 t h e 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 t h e 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 e n g vironmental 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 h e 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 n o t 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 e n v i r o n m e n t o r toward t h e 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 . 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 b u t 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 t h e 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 . 5  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. Starting Bid  Conditions A  $  B  A  C  B  C  A  D  1.00  2.40  4.08  2.27  4.19  $5.00  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 results.  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 bidding technique."  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  with  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 biases.  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 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  furnished  preferences conducted  M e x i c o ' s Jemez M o u n t a i n r e c r e a t i o n a r e a (Thayer, 1981).  in  New  The g e n e r a l a p p r o a c h  i s s i m i l a r t o t h a t o f the p r e c e d i n g s t u d i e s w i t h the f o l l o w i n g e x c e p t i o n s : (a) the 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 to o t h e r s a l r e a d y d e v e l o p e d  i n the 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 d e v e l o p m e n t c o u l d i n c l u d e the e m i s s i o n o f noxious 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 the e n v i r o n m e n t . 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 "address 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 the 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 are assumed t o be i d e n t i c a l , seek t o maximize the 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 then e x t e n d e d t o  i n v e s t i g a t e each o f the 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 o f t h e b i d d i n g a p p r o a c h w i l l not i n f l u e n c e r e s p o n s e s  nature  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 demons t r a t e s t h e . s i m i l a r i t y w i t h w h i c h r e s p o n d e n t s r e a c t t o the p r o c e s s . " Howe v e r , the 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 proceeds onwards, as i f the 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 of tunnel 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 not p a y i n g the b i d and t h e r e b y a l l o w i n g d e v e l o p m e n t 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 diminished. ^ 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 the c o n s e q u e n c e s 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 of a systematic bias.  His 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 the 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 with r e c r e a t i o n plans at a s u b s t i t u t e (post-development)  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  respondent  behavior.^ Thayer's t e s t o f i n f o r m a t i o n bias evaluates whether asking survey 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 nearby 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  determinant  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) attempts to v a l i d a t e the i t e r a t i v e bidding survey procedure through comparison 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 a t t e m p t 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 , the 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 sion f o r non-paying 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 ( 1 9 7 3 ) , 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 a v 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 . i n t e r p r e t a t i o n of these r e s u l t s i s d i f f i c u l t :  The  two c o n c e r n s w i l l be noted  h e r e 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. $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.  F i r s t , both $1.00  and  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 the s t a r t i n g p o i n t s were i n s t e a d $1.00 p o i n t b i a s might be i n t r o d u c e d .  and $50.00, a s i g n i f i c a n t s t a r t i n g  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 the 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 M o u n t a i n 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 o f how l a r g e e n t r a n c e f e e s commonly are..  understanding  Thayer'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 the 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 expressions of value. In summary, the r e s u l t s r e p o r t e d i n Thayer's tively fragile.  1981 s t u d y a r e decep-  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 understandable  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 ,  then 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 respondents'  bids.  However, t h e s e c o n d i t i o n s are 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 d e v e l o p m e n t 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 are present.  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 cannot d i f f e r e n t i a t e between b i d s w h i c h might r e p r e s e n t a respondent's  v a l u a t i o n o f the 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  procedures.  And on the 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 c o m p e n s a t i n g 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 t h e p a r t o f both government a g e n c i e s and p r i v a t e consultants.  U t i l i t y companies and r e s e a r c h groups such as t h e 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_. (1978), 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 q u a l i t y i n t h e 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 .  water  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,. bequest).  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 -  ual 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 t h 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 agree 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 . " "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 t h 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 t h e 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 consume r ' s s u r p l u s measures a r e n o t e d b u t n o t 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" Li  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 a n d a number o f s o c i o - e c o n o m i c variables.  However, t e s t s f o r t h e p r e s e n c e o f b i a s were n o t u n d e r t a k e n a n d ,  with the exception o f a general caveat regarding the hypothetical nature o f t h 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  of t h e r e l a t i v e l y novel and complex s u b j e c t m a t t e r , i m p l i e s an undeserved c o n f i d e n c e i n t h e 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 u s e i n t h e 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 appear 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 t h e 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 a n d bequest 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 value.  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 compensation  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 Columbia, 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 t h e p r e s e r v a t i o n o f environments 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 t h e 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 times a s g r e a t as v a l u e s o b t a i n e d on t h e b a s i s o f a proposed 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 t h e 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  residents of preserving their favorite freshwater fishing 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 r a n g 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 pending the 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 a p p r o a c h 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 permits i n Wisconsin. charge:  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  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  averaged  $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  appears  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  M o r e o v e r , 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 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 Yet 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 possible evaluation techniques:  without a straightforward comparison of  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 ,  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 i n C h a p t e r VI.  pay.  a p p r o a c h r e p r e s e n t s 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 s , i t i s not 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 b e s t measure.  permit  the bidding presented  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 m a j o r t e n e t s as g i v e n .  In f a c t ,  modern economics now uses the 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 the 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 c o n s u m p t i o n o f a good o r the 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 they f o r m a l l y d e m o n s t r a t e d t h a t the u t i l i t y o f an u n c e r t a i n a c t i s equal 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  probability-weighted  a v e r a g e ) o f the ( 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  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)  theory  advancing  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  of 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 p r o p o s e maximization  o f the c r i t e r i o n as a guide to 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 the way i n which i n d i v i d u a l s a s s i g n t o outcomes w i l l be c o n s i s t e n t w i t h the m a x i m i z a t i o n  of expected  utilities  utility.  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 the 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 person 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 the sense t h a t p r e s e n t  actions  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 realized.  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  curves)  and know what he o r she wants i n the 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  behavior  i n t h e s e n s e 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 (Hogarth,  1980).  T h i s p i c t u r e o f a person as a c o m p l e t e r a t i o n a l d e c i s i o n maker r e a l l y addresses  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 b o u t i t a t the time.  It i s elegant,  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 obs 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  adjust-  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 people a c t u a l l y go t h r o u g h the mecha n i s t i c step-by-step  maximization  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 t h e o r y , the 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  utility  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 . the framework suggested  Stripped of i t s normative basis,  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 , the " 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 approaches"--requires  utility  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 the 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 the arguments o f Simon (1956; 1979), March (1978) and o t h e r s which f a l l under the heading o f bounded rationality.  The a p p r o a c h emphasizes t h a t the 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 the 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 )  preference-evaluation  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 s e s s m e n t 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  or  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 subj e c t i v e a d j u s t m e n t ; not by the f u l l c o n s i d e r a t i o n o f c o n s e q u e n c e s 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 the 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 , the 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 anticipated preferences.  This immediately  and  i n v o l v e s the p o s s i b i l i t y o f  change, both i n a person's v a l u e s and i n the t y p e o f c h o i c e s which are p r e sented.  However, n e i t h e r u t i l i t y t h e o r y nor the 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 response 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  response  to s l i g h t a l t e r a t i o n s i n the framing of choices. One o f f o u r r e s p o n s e s  is likely.  F i r s t , r e c a l c i t r a n t behavior  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  may  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 . encounter a Procustean  S e c o n d , observed  preferences  t h e o r e t i c a l s t r u c t u r e which amputates,  elongates,  t w i s t s and t u r n s the i n c o m i n g d a t a so t h a t i t f i t s the a s s i g n e d bed.  may  conceptual  A t h i r d and more s a t i s f a c t o r y a p p r o a c h 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 the e x p e c t e d t h i s or that condition.  u t i l i t y d e s c r i p t i o n s under  Much o f the 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 R o s s , 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), 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 events  (Kunreuther  Kun-  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 the l i s t o f e x c e p t i o n s grows, so too does the 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  integrat-  i v e p a r a d i g m , and i n 1979 t h i s a p p e a r e d i n the form o f P r o s p e c t T h e o r y . d e v e l o p e d by Kahneman and T v e r s k y  As  (1979a) and T v e r s k y and Kahneman ( 1 9 8 1 ) ,  the p r o p o s e d 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 Prospect theory addresses which are expressed probabilities.  framework.  the same two key a s p e c t s o f d e c i s i o n making  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  statistical  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 weighting  f u n c t i o n , T T ( p ) , i d e n t i f i e s the 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 c h a n c e 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.  This subjectively defined  reference p o i n t , assigned a value o f zero, could represent a person's perc 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 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.  other  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  unpleas-  ant 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 c o n c a v e above the r e f e r e n c e p o i n t and convex below i t (see F i g u r e 4 ) .  As a  r e s u l t , a person 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 volved  increase. . 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 weights.  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 empirical findings,  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 the 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 underweighting  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  conse-  quence i s t h a t the a t t r a c t i v e n e s s o f g a i n s o r the 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 to 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 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  probable.  is  more than 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 probabi 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 weighting  f u n c t i o n s employed i n prospect' t h e o r y imply 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  value  Losses  Figure 4 A Hypothetical Value Function Source:  T v e r s k y and Kahneman, 1981.  0  075 stated probability: p  1.0  Figure 5 . ' Source:  A Hypothetical Weighting Function  T v e r s k y and Kahneman, 1981.  52  his choice.  The term " d e c i s i o n frame" i s used by Kahneman and T v e r s k y  to  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  (conditional probabilities) associated  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 a d o p t e d 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 gencies.  S p e c i f i c examples o f c o n s e q u e n t i a l  manipulations  of decision  f r a m e s , w h i c h 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 behavior.  observed  As a r e s u l t , the 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  process  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 " 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  considerations—must procedure.  In f a c t , the manner i n w h i c h an . a c t i o n i s p e r f o r m e d may prove to be more i m p o r t a n t  than 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 .  Although  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 s s m e n t s which r e c o g n i z e the 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  resources,  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 d e d 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 actions costs."  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  expected  u t i l i t y m o d e l s , 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 subj 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 t h o 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 (not w o r t h y 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 m i g h t emotional  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  also  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 t r u e p r e f e r e n c e s .  Prospect  1  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 conceptual  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  process considerations.  C h a p t e r VI w i l l d i s c u s s the 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 the 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 of value. 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  responses  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 from 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 to 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 are 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 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 than random.  statis-  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 the sense t h a t t h e y a r i s e w i t h i n the 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 the 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 expressions of environmental  preferences.  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 c a u s e o f i n a c c u r a t e  54  responses.  T h i s i m p l i e s t h a t the 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 w o u l d 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 independently  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  research.  J u s t i f i c a t i o n f o r t h i s review i s based on the i n a d e q u a t e acknowledgement 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 ment which a d d r e s s e s  manage-  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 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 of valuing preferences  f o r s p e c i f i c non-market goods.  context  The p r e s e n c e o f a  c o m m u n i c a t i o n s gap i s not 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 i n g ground o f c o g n i t i v e psychology  must a p p e a r as q u i c k s a n d  r a t i o n a l maxims o f u t i l i t y  t o the e c o n o m i s t s t e e p e d i n the  theory.  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 , the 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 compreh 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 first  s e c t i o n examines m a j o r 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  inten-  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 m a j o r 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  these e f f e c t s . Motivational  Biases  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  nature  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 a p p e a r a n c e as p a r t o f d i r e c t l y exp 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 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 .  through  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 the 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 the 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 preferences.  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 maximization  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 I I I , t h e s e assumptions 1  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 suggest 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 environmental  v a l u e s m i g h t p r o f i t a b l y be extended.  of motivational bias are considered.  Three major c l a s s e s  56 Strategic bias.  S t r a t e g i c bias a r i s e s through the attempt 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 those 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 n o t 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 ) subj 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 t h e 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 experimental  s i t u a t i o n s , w h i l e M a i e r (1974) was among t h e f i r s t t o  d i s c u s s response bias i n expressed preference e v a l u a t i o n s o f environmental services.  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  (1980),  f o r example, a s k 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 w h e t h e r 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 developers decrease) t h e i r bids r e l a t i v e t o those 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 bias  is present, i t i s expected that f a l s e expressions o f value (constrained t o non-negative  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 the 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, the p r e d i c t i o n i s t h a t the 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 empirical evidence to support t h e i r existence.  Bohm (1972), 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 found the 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 through 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 strategy.  An a t t e m p t 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 a d e q u a t e c o m p u t a t i o n a l  ability.  At  p r e s e n t i t a p p e a r s s a f e to 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 than 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 the e f f e c t w i l l r a r e l y prove  terminal. Information bias.  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 of information with unintentional c o g n i t i v e biases.  The f i r s t and most  f r e q u e n t type o f i n f o r m a t i o n b i a s a r i s e s from the 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 the 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 the 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 reason t h a t anyone a s k i n g q u e s t i o n s about e n -  vironmental  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 t h e 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 c a n 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 obtained. 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 t h e survey issue 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  environ-  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 represent charicatures of true preferences.  In t h i s case 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 the s u r v e y i s conducted cant;  ( f o r example, whether  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 - '  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 h o p k e e p e r who hates w i l d e r n e s s o r t h e backwoods f a r m e r who w o u l d 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 u r b a n 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 when  the strength o f t h e i r true  preferences  surveyed.  Hypothetical bias.  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 thought 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 t h e 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 they would be w i l l i n g t o pay t o v i s i t a p a r k 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 response 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 overt behavior.  As a r e s u l t , t h e respondent  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 formulate public policy could result i n a biased representation of social preferences.  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 .  For  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 post 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 the 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 to 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). E c o n o m i s t s 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 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 responses."  questions  accurate  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 get a h y p o t h e t i c a l answer--the study by 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  Bishop  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  preconceptions.  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  processing  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 people would p r e f e r t o t e l l t r u t h and do.  The a t t i t u d e o f Kurz (1974:333) a p p e a r s t y p i c a l .  the  He assumes  t h a t " i n the a b s e n c e 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 thus [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 t r u t h and  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 the c o n t r a r y . have w e l l - f o r m e d  But as l o n g as people a r e assumed t o  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  pres-  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 the 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 the v a l u e o f a p u b l i c good, t h e y a r g u e 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 m i g h t be a l t e r e d (Blank ejt aJL , 1978).  61 c r i p t i o n i s t h a t the a t t e n t i o n of economists f a c t o r s as i m p r o v i n g the i n s t r u m e n t s  can p r o p e r l y c e n t r e on such  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 sections.  Most i m p o r t a n t l y , the 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 , the 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 to 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 concern i n  the 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 the "endowment e f f e c t " arid the " r e a l exchange" e f f e c t . The f i r s t term r e f e r s to the d i f f e r e n t importance  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 the 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 importance  of opportunity costs r e l a t i v e to actual  ( 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 p p e a r more w i l l i n g t o spend  "opportunity  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  suggested  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 behavior.  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 cogn 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 i m a g i n e the s p e c i f i c f u t u r e c o n s e q u e n c e s under examination.  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 g h t i n d i v i d u a l s n o t know w h e t h e r 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 the 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 , but 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 c o n s e q u e n c e s may i n i t s e l f help to d e f i n e a person's true values. In t h i s s e n s e , the e c o n o m i s t s '  reply that hypothetical questions will  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 brought i n t o the p i c t u r e , not o n l y m i g h t 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 revealed preference.  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 her 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 jectives.  ob-  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  to consider  any s i n g l e honest 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 c o m p r e h e n s i v e e x p r e s sion of t h e i r preferences. Cognitive Biases Cognitive biases are unintentional d i s t o r t i o n s of true preferences w h i c h r e s u l t from 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 persons 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 than 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 of environmental  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 environment 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).  t o form r e p r e -  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 :  normatively  appropriate  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 appears t h a t we seek t o  reduce the c o m p l e x i t y o f the 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 the 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 m a j o r 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 noted i n t h i s s e c t i o n . Representative bias.  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 degree 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 then judged t o be h i g h .  The  representativeness  b i a s tends 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 encourages  (a) the  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 non-independent,  input variables  ( 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 ) . both t h e well-known gambler's  Representative biases incorporate  f a l l a c y ( " i f i t happened l a s t time 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  relative  to 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 our a b i l i t y to 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  events.  Availability bias.  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 , imagi 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 to 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 wording 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 ceived past. A n c h o r i n g b i a s . Adjustments  from an i n i t i a l v a l u e tend 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 , subsequent p e r c e p t i o n s and v a l u a t i o n s tend to be s t r o n g l y i n f l u e n c e d by, o r anchored 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 complet 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 attempt to 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 assumption:  both o u r s e l v e s and our 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. Overconfidence bias.  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 our a b i l i t y t o p e r c e i v e and evaluate information.  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 respond 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 than 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 genuine 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  to 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 A r e l a t e d aspect of overconfidence u n c e r t a i n t y ("earthquakes  views.  b i a s e s l e a d s t o the outspoken d e n i a l o f  don't happen here") 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 third  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  presence  66 of r i s k seeking i n choices i n v o l v i n g c e r t a i n losses.  Finally, Fischhoff  (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 they "knew i t would occur" a l l along.  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 the 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 e n c o u r a g e an u n w a r r a n t e d 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 . 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 t u r e d so as t o d e m o n s t r a t e ,  Such o v e r c o n f i d e n c e  feedback i s not s t r u c -  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 w e a t h e r 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 ) . Contextual bias.  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 take on r i s k s appears to 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 unique 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  differ  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 ual 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 preferences.  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  consequently  inaccurate valuation of preferences. 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 from the u n c o n s c i o u s  ten-  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 shared 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 . phenomena, w h i c h Kahneman and T v e r s k y  This  (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 e m p h a s i z e d ; f o r example, t h e same i s s u e may be viewed i n a subs 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 This aspect of contextual  as u n i q u e .  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 treatment  over " s o f t e r " or l e s s f a m i l i a r values.  A t h i r d form of contextual  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 )  cognitive strate-  g i e s were used f o r the 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). Debiasing  Strategies  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 measurement 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 of non-motivational  sources of e r r o r i n judgemental tasks.  N i s b e t t and  Ross ( 1 9 8 0 : 1 2 ) , f o r example, warn the 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 proceed from the w o r k i n g h y p o t h e s i s  "We  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 from non-motivational--perceptual  and  cognitive—sources.  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 processing strategies."  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  considera-  68 t i o n s " and argue t h a t i n many c a s e s " t h e method becomes t h e message."  (Slovic  et al_., forthcoming). 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 t h e 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  (1980)--discussions  of 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 a n d 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 h e two s o u r c e s .  Following  normative  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 t h e 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 employing 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 .  Fur-  thermore, 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 bias.  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 widespread  ( 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 to 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 h e 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 t h e 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 prone." (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 usual d e c i s i o n s o f  69  a normal i n d i v i d u a l may p r o v e t o be m i s l e a d 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  Fischhoff  (forthcoming),  a c c o r d i n g to whether the sub-  j e c t , the t a s k , o r the r e l a t i o n between them i s to be h e l d r e s p o n s i b l e f o r the judgemental e r r o r s under c o n s i d e r a t i o n .  W h i l e 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 t a t i v e respondents,  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  represen-  biases  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 lem ( F i s c h h o f f e t a l _ . , 1980).  prob-  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 , the 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 the 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 respondents  by s u r v e y  procedures.  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 proceed 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 label of contrived experimentation) debiasing i n i t i a t i v e s .  and s h o u l d h e l p p o i n t the way t o p o s s i b l e  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 the 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  folly"  s e r v e s t o emphasize t h a t the 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  experimentation  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 reminder.  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 t h e 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 m a j o r 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 h e v a l u e o f non-market goods on t h e 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 t h e f o c u s o f my empirical research.  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 t h e 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 t h e 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 w o r d i n g s 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 h e magnitude o f s u r v e y r e s u l t s , and i f so what a r e t h e 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 a p p e a r 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 o n 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 theories.  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 empirical evidence r e g a r d i n g the importance o f each c o n c e r n i n t h e 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 compens 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 m a j o r 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 t h e 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 approach 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 the l e v e l v a r i e d across i n d i v i d u a l s .  The open-ended a p p r o a c h a s k s r e s p o n d e n t s  t o s t a t e t h e maximum (minimum) amount they 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 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 .  buying  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 h e w i l l i n g n e s s  t o pay and t h e c o m p 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 a n d 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 r e s e m b l a n c e 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 true, the results o f a contingent  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 policy.  valuation  of public  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 a n d c l o s e d - e n d e d  f o r m a t s o f b o t h t h e payment a n d c o m p e n s a t i o n v a l u a t i o n  alternatives. I n f l u e n c e o f Framing E f f e c t s Common s e n s e s u g g e s t s t h a t changes i n t h e way i n w h i c h v a l u a t i o n q u e s t i o n s a r e a s k e d 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 i n f l u e n c e o f framing e f f e c t s might increase. a number o f s l i g h t m a n i p u l a t i o n s  that the  In t h e s e t e s t s I a s k whether  i n the phrasing o f the survey question 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 a s 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 suggest 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-ign'ifi-" cant. Influence of Anchoring  Biases  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 the 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 the 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 . have t h e r e f o r e been d e s i g n e d such a n c h o r i n g  Several t e s t s  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  of  biases.  Influence of Process  Variables  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 preferences.  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  expressed  goods, both  respon-  s i b i l i t y c o s t s and the 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 m i g h t t h e r e f o r e be e x p e c t e d 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 , explanation f o r observed  to s i g n f i c a n t l y  and c o u l d p r o v i d e a p a r t i a l  d i f f e r e n c e s between e q u i v a l e n t and c o m p e n s a t i n g  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 e x p l o r e t h e s e problem a r e a s .  t e s t s have been d e v e l o p e d t o  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 the 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 .  Information relevant to 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 total of  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 r u n i n t h e s e r i e s , w i t h t h e 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 i n economics  c l a s s e s 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.  students e n r o l l e d 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 t h e 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 t h e 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 h e r e s u l t s o f t h e s e s u r v e y s .  A total o f nineteen 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 t h e s e r i e s , w i t h average sample s i z e s f o r each exp e r i m e n t o f about one hundred  persons.  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 comprehend.  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 a n d 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 t h e 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 t h e q u e s t i o n n a i r e s was passed out 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 h e U n i v e r s i t y o f B r i t i s h Columbia.  A total o f five to ten  75 minutes 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 followed. 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 out 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.  Personal 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 times 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  out 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  cities  ( 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 kept 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 to 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 to 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 between-subject  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 the 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 t h e 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 experiments.  A d d i t i o n a l information i s given i n the subsequent chapter,  w h i c h 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 c o m p l e t e 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 . Surveys 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 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 groups.  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 paragraph  f i r s t described the  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 e n v i r o n m e n t c o s t s money. 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.  T h i s same i n i t i a l d e s c r i p t i o n was  The w i l l i n g n e s s t o pay q u e s t i o n s  described the hypothetical existence o f a s p e c i a l environmental  next  q u a l i t y tax  w h i c h 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 a v e r a g e a i r q u a l i t y l e v e l s o r t o maintain present area a i r q u a l i t y standards. t i o n s suggested  The w i l l i n g n e s s t o s e l l ques-  that a willingness to allow declines i n local a i r quality  could r e s u l t i n decreases i n P r o v i n c i a l taxes f o r a l l area residents o r e q u i v a l e n t annual c o m p e n s a t i o n 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 answering 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 study  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 proposed 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 format 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 environmental  q u a l i t y be ranked r e l a t i v e to a number o f o t h e r e x p e n d i t u r e  claims. 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  to the  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 payment a n d c o 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  paragraph  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 the good o r e x p e r i e n c e c o u l d be purchased  or sold.  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 c o m p e n s a t i o n 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 t h e 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 increments.  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  to f a c i l i t a t e a separate comparison o f p a r t i c i p a n t s ' responses 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 c o m p e n s a t i o n . Surveys Conducted a t t h e 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 general types.  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  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 .  Following  short introductory questions, designed t o provide basic information respondents'  three regarding  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 ensure 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 w h i c h 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 versions  (except,  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 designed to e l i c i t broad-ranging oral responses concerning the 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 h e amount o f compensation  t h a t would be r e q u i r e d i f t h e 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 quest 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 available.  i f t h e e x p e r i e n c e were no l o n g e r  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 , t h e i d e a was i n t r o -  duced t h a t c l o s u r e o f t h e 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.  Individuals  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  fora curtail-  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 h e v a l u e o f t h e 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 never v i s i t i t s e x h i b i t s i n person.  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 a n d 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 a s 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 question.  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 measu r 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 response t o hypothetical questions.  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 , w h i c h 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 chapter. 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 e n c o u r a g e p a r t i c i p a n t s t o respond a c c u r a t e l y , and the 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 small 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  quality) or  an o p p o r t u n i t y t o be compensated f o r the l o s s o f a g o o d — w a s p r e s e n t e d t o each individual.  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  informa-  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 m i g h t have i n f l u e n c e d r e s p o n s e s t o subsequent  experiments.  T e s t 1 ( Q u e s t i o n n a i r e s l a and A f i r s t experiment  2a)  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 average a i r q u a l i t y levels."  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  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  respondents  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 h e sample p o p u l a t i o n , t h e conventional expectation i s that the expressed value o f environmental 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 t h e two measures.  If individuals are willing to  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 than 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 h e 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 t h e p e r centage 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 air quality. 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 . While 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 respondents  (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 compensation.  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 i 1 1 i n g n e s s 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  this trade. V a l u e > $25 W i l l i n g t o pay $25  41 ( y e s )  W i l l i n g t o a c c e p t $25  48 (no)  Total  89  V a l u e < $25 15 (no) 4 (yes) 19  Total 56 52_  ( T e s t 1)  108 x" = 6.65  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 t h e 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 at the 5 percent 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 agree t o pay a s p e c i f i e d amount o f money o r accept a non-negotiable o f f e r of compensation.  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 persons 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  said  t h e y would a c c e p t . V a l u e > $25  V a l u e < $25  Total  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  Total  89  42  131  ( T e s t 2)  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 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 .  pro-  Sixty-two percent of 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 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 . * 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 the 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 they 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 small sample o f Vancouver a r e a r e s i d e n t s .  It  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 the 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 the 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 c o m p e n s a t i o n 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 to a c c e p t $25.00 i n c o m p e n s a t i o n . V a l u e > $25 W i l l i n g t o pay $25 W i l l i n g to a c c e p t $25 Total  19  V a l u e < $25  Total  14  33  __26  6  32_  45  20  65  ( T e s t 3)  x The r e s u l t s o f t e s t 4 show t h a t  =  2  37 p e r c e n t and 67 p e r c e n t o f  4.17  respon-  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 the b a s i s o f payment and compen2 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 , the e x p e r i m e n t s suggest t h a t the v a l u e which p a r t i c i p a n t s 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 than 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 c o m p e n s a t i o n f o r i t s l o s s . 3.84  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. a t the 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 .  is  85 V a l u e > $25 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 Total  V a l u e < $25  Total  11  19  30  __36  18  54  47  37  84  ( T e s t 4)  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 quality levels.  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 the pattern o f the previous  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 W i l l i n g t o pay $200  V a l u e < $200  Total  9  21  30  W i l l i n g t o a c c e p t $200  24  14  38  Total  33  35  68  ( T e s t 5)  x  2 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 compensation.  These r e s u l t 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 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 h e 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 final estimated values.  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 9c, 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 e v e r y d a y goods and e x p e r i e n c e s .  f o r a s e r i e s of ten  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 purchase a t i c k e t o r t o be compensated f o r i t s l o s s .  Three 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 highest.  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 buying 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 .  Although  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 v a l u e became more m e a n i n g f u l increased.  as t h e d o l l a r amount employed i n the  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 demonstrate  measures o f experiments  that only eight  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. 2 ence p r o v i d e s an x  However, t h i s d i f f e r -  o f 3.81, which 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 percent 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 i m 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 ' behavior begin  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, t h e 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 at a 5 percent l e v e l . V a l u e > $0.20  V a l u e < $0.20 T o t a l  W i l l i n g t o pay $0.20  32  15  47  W i l l i n g t o a c c e p t $0.20  33  14  47  Total  65  29  94  ( T e s t 6)  x  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  16  31  47  W i l l i n g t o a c c e p t $0.60  24  22  46  Total  40  53  93  ( T e s t 7)  yf-  V a l u e > $1.00  =  3.10  V a l u e < $1.00 T o t a l  8  22  30  W i l l i n g t o a c c e p t $1.00  19  19  38  Total  27  41  68  W i l l i n g t o pay $1.00  = .03  ( 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 the 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 lower 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 time t o c o n s i d e r the proposed t r a n s a c t i o n . 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 the 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 ,  This 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 example, $25.00 r a t h e r than $10.00) were t e s t e d .  (for  Yet t h i s does not r e a l l y  p r o v i d e an answer f o r the v a r i a t i o n i n the two m e a s u r e s , 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 than 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 contemplate  i n compensation.  Whether i n d i v i d u a l s  the 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  the 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 the 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 to 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. and a d d i t i o n a l e x p e r i m e n t s  However, t h e e x p l a n a t i o n remains  which seek t o add t o the r e a s o n s behind  partial observed  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 chapter.  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 time 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 loss.  for its  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 .  Values  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 compensation 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 to 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 persons o f f e r e d compensation  (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 to 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 percent l e v e l . W i l l i n g t o pay  V a l u e > $1.00 $1.00  W i l l i n g to accept Total  $1.00  V a l u e < $1.00  Total  5  44  49  13  35  48  18  79  97  ( T e s t 9)  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)  This t e s t again presented p a r t i c i p a n t s with a l i s t of ten 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 the 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  experience.  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 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  support  v a l u e s w i l l emerge i f c o m p e n s a t i o n  r a t h e r than 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 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 ticket.  respon-  o r more i n o r d e r t o o b t a i n a  On the 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 c o m p e n s a t i o n 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 the c a l c u l a t e d x s i g n i f i c a n t at the 5 percent  V a l u e < $1.00  Total  2  35  37  W i l l i n g t o a c c e p t $1.00  17  19  36_  Total  19  54  73  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 the open-ended t e s t .  is  level. V a l u e > $1.00  W i l l i n g t o pay $1.00  o f 16.44  (Test  10)  x  16.44  2  =  disparity in  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 , 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 o m p e n s a t i o n would be a f f e c t e d  but i t  d i f f e r e n t l y than p a r t i c i p a n t s ' w i l l i n g n e s s to purchase 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 :  the w i l l i n g n e s s to  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 t h e 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 t h e 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.  Furthermore,  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 subs 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 t h e s e l e c t i o n o f an open-ended measurement a p p r o a c h .  This interpretation follows  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 i l e a l l twenty-one p e r s o n s who were asked t h e 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 t h e f o r t y - s i x p a r t i c i p a n t s i n t h e 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 value.  F u r t h e r m o r e , t h e i r mean l e v e l o f c o m p e n s a t i o n 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 the question blank.  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  affected respondents' expressed values.  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 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 .  f o r the same s e r 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 through 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  questions is  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 reached. 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 not 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 the 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 purchase 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 compensation.  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  percent o f respondents  (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 -  pate 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  respondents  (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 percent l e v e l . V a l u e > $1.00 V a l u e < $1.00  Total  W i l l i n g t o pay $1.00  10  21  31  W i l l i n g t o a c c e p t $1.00  22  15  37  Total  32  36  68  ( T e s t 11)  5.04 V a l u e > $1.00 V a l u e < $1.00  Total  W i l l i n g t o pay $1.00  14  21  35  W i l l i n g t o a c c e p t $1.00  29  12  41  Total  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., b.. and h.) ~  b.. and  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 f r o m 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  respondents' written o r verbal responses t o a s e r i e s o f questions designed to 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 t h e 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 a s k 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 t h e 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  the quality  of the 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 h e 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 . e i g h t percent o f respondents  Forty-  (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 b u t 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 value are not equivalent. V a l u e > $10  V a l u e < $10  Total  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  Total  44  19  63  ( T e s t 13)  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 compens 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 three respondents  (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. 2  This r e s u l t s  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 the 5 percent l e v e l .  95 V a l u e > $10  V a l u e < $10  Total  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  Total  60  18  78  ( T e s t 14)  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 from a c o 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 h e 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 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  I I and  I I I , t h r e e m a j o r 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 closed-ended  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 c a n be found i n t h e 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 comparison o f t h e three measures  %  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 the previous 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 c o m p e n s a t i o n 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  therefore  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-  jects. 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 minor 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 t h e average  e x p r e s s e d by t h e sample p o p u l a t i o n .  preferences  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 t h e 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 b u t a l s o t h e n e u t r a l i t y o f t h 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 assumption 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 approach 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 of participant's true values. The r e s u l t s which have been o b t a i n e d demonstrate  a substantial differ-  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 m e a s u r e s , a n d p r o v i d e p r e l i m i n a r y evidence t h a t i n d i c a t e d values w i l l vary with t h e type o f e v a l u a t i o n format 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 n o t  random b u t 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  which 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 t h e compensation The complete s e t o f s u r v e y s , as shown i n t h e Appendix  questions.  (Questionnaires  8a t o 8 g , 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 a s 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 n o t 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 9 c ) 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 quest 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 ) , t h e 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.  For 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 c o m p e n s a t i o n . 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 t h e two e v a l u a t i o n a p p r o a c h e s , b u t 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 d e 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 h e t i c k e t a t more t h 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 t h e 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 c o m p e 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 . participants  While twenty-two o f f o r t y - s i x  (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  Bidding Game - 201 01 lo  Bidding Game - 40<£ 01 to  Closed-Ended  C l o s e d Range  Open-Ended  01 lo  01 lo  01 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 V a l u e > $0.60  V a l u e < $0.60  Total  W i l l i n g t o pay $0.60, b i d d i n g game  19  16  35  W i l l i n g t o pay $0.60, closed-ended  16  30  46  Total  35  46  81  ( T e s t 16)  3.12 V a l u e > $0.60  Value < $0.60  Total  W i l l i n g t o pay $0.60. b i d d i n g game  29  12  41  W i l l i n g t o pay $0.60 closed-ended  24  22  46  Total  53  34  87  ( 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 t h e 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  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  evaluation i s i n t r o d u c e s an  a d d i t i o n a l e l e m e n t o f gamesmanship w h i c h c o u l d prove t o be l a r g e l y of respondents'  independent  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 u n d e r 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 hidden agenda on t h e p a r t o f t h e i n t e r v i e w e r by w h i c h a f o r m u l a such a s " 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, w h i c h 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 increment.  100 T e s t s 18 and 19 ( Q u e s t i o n n a i r e s and 8g, 9e and 9gT  '•  8e  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 the two a p p r o a c h e s i s a g a i n .meaningful, and i n the same d i r e c t i o n as i n the preceding tests:  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 compensation i n return 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 the open-ended f o r m a t was  expected  to e n c o u r a g e the 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 the payment and selling alternatives.  P a r t o f the e x p l a n a t i o n  may  be found i n the  the  contextual  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 in a i r quality.  declines  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 the 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  ( 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 .  and  As a r e s u l t , i t may be much more  d i f f i c u l t to s e t l i m i t s on the r e a l c o s t s o f the exchange because t h e y a r e psychological  as w e l l as e c o n o m i c , an argument t o which we w i l l r e t u r n i n the  f i n a l section of this chapter. The r e s u l t s o f the 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 the p a r t i c i p a n t s (10 o f 31), v a l u e d the t i c k e t as worth a t l e a s t $1.00  u n d e r 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 the r e s p o n d e n t s (2 o f  a g r e e d to pay $1.00 2  o r more when the open-ended q u e s t i o n f o r m a t was  W i t h an x  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  o f 8.26,  c a n t a t the 5 p e r c e n t l e v e l .  37)  employed. is signifi-  101 V a l u e > $1.00  V a l u e < $1.00  Total  W i l l i n g t o pay $1.00, b i d d i n g game  10  21  31  W i l l i n g t o pay $1.00, open-ended  2  35  37  12  56  68  Total  ( T e s t 18)  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 at the 5 percent l e v e l . V a l u e > $0.60  Value <$0.60  Total  W i l l i n g t o a c c e p t $0.60, b i d d i n g game  25  12  37  W i l l i n g t o a c c e p t $0.60, open-ended  17  19  36  Total  42  31  73  ( T e s t 19)  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 app 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 c o m p a r i s o n 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 quest 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  value  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 level.  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.  Y e t 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  Total  W i l l i n g t o pay $1.00, closed-ended  8  22  30  W i l l i n g t o pay $1.00, closed-range  -5  44  49  Total  13  66  79  ( T e s t 20)  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 .  While .  j u s t over one-half of those p a r t i c i p a t i n g i n the closed-ended experiment  (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 quest 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, closed-ended  24  22  46  W i l l i n g t o a c c e p t $0.60, closed-range  18  30  48  Total  42  52  94  ( T e s t 21)  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 compensation  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 empirical evidence. 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 compensat 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 Knetsch 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 . 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 pensation—involve  the same o p p o r t u n i t y ,  So  and a c t u a l , p u r c h a s e and com-  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 the 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 the 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 the c h o i c e o f p u r c h a s i n g  students  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 the 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 s k e d p a r t i c i p a n t s to  v a l u e ten goods o r a c t i v i t i e s but i n t h i s c a s e the 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. $0.20 and $1.00  A range o f v a l u e s between  was p r o v i d e d , and r e s p o n d e n t s were a s k e d to c i r c l e the  which best r e p r e s e n t e d  value  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  the 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 the 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 (depend 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 groups.  two  Each s t u d e n t i n the 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 the o p t i o n o f e i t h e r p a y i n g to 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 the chance to t a k e p a r t .  Students in  the second g r o u p , 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 to be i n the 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 or  i n small g r o u p s , and were not i n f o r m e d t h a t c o m p a r i s o n s o f payment and compens 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  transac-  t i o n s i n the 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 .  Actual  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 hypothetical test situations.  T h i s e v i d e n c e t a k e s two forms.  F i r s t , responses  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. Secondly, the actual behavior of 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 cash 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 to p a r t i c i p a t e i n e i t h e r the h y p o t h e t i c a l or the real 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 approximations o f respondents' actual behavior. 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 asked 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  Lottery Prize Calculator  Level o f Payment $0.20  $0.60  $1.00  Champagne  $0.50  Question Format  W i l l i n g n e s s t o Pay Hypothetical Actual %  %  B i d d i n g Game  Willingness t o Accept Hypothetical Actual %  -  %  Yl  9  Closed-Ended  68  68  30  23  B i d d i n g Game  54  56  29  26  Closed-Ended  35  27  48  42  B i d d i n g Game  40  31  Closed-Ended  26  21  50  53  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 w i n n e r would be chosen w i t h i n a few m i n u t e s (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 the hypothetical experiment.  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 c o m p e n s a t i o n f o r its loss.  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  conventional  economic t h e o r y , then t h e same p r o p o r t i o n o f i n d i v i d u a l s  should  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 t h e 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 cash.  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 t h e two measures i s r e l i a b l e . V a l u e > $0.60 W i l l i n g t o pay $0.60  V a l u e < $0.60  Total  9  24  33  W i l l i n g t o a c c e p t $0.60  18  13  31  Total  27  37  64  ( T e s t 23)  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 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  imply  situations are similar.  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  to the payment and s e l l i n g e v a l u a t i o n V a l u e > $0.60  W i l l i n g to- pay, hypothetical W i l l i n g to pay,  16 actual  Total  25  alternatives.  V a l u e < $0.60  Total  30  46  24  33  54  79  (Test  24)  .47 V a l u e > $0.60 W i l l i n g to a c c e p t , hypothetical W i l l i n g to accept,  actual  Total  V a l u e <. $0.60  Total  24  22  46  18  13  31  42  35  77  (Test  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  difference  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 the h y p o t h e t i c a l and the a c t u a l experiments. 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  9f)  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  hypothetical  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  values.  Both the payment and the c o m p e n s a t i o n t e s t s employed a s t a r t i n g b i d o f $0.20 and the r e s u l t s show the 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 o m p e n s a t i o n 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 the payment and s e l l i n g measurement a l t e r n a t i v e s are presented  below.  Forty-four percent  (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 the 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  for i t s loss.  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^  Total  67  35  102  ( T e s t 26)  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 pants 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 hypot 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 opport u n i t y to p a r t i c i p a t e i n the l o t t e r y , suggest t h a t i t i s not.  I n s t e a d , the  2 insignificant 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 hypothetical question formats. V a l u e > $0.60  Value < $0.60  Total  W i l l i n g t o pay, hypothetical  19  16  35  W i l l i n g t o pay, actual  27  21  48  Total  46  37  83  ( T e s t 27)  x  2  = .03  no  V a l u e > $0.60  Value  $0.60 T o t a l  W i l l i n g to accept, hypothetical  29  12  41  W i l l i n g to accept, actual  40  14  54  Total  69  26  95  ( T e s t 28)  x 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  2  = .14  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 imported 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 to a n t i c i p a t e m a j o r d e v i a t i o n s from t h e e a r l i e r raffle results. 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 again demonstrates  i f t h e y would g i v e i t up once  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  warranted.  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 order to obtain a t i c k e t . 2 measures shows an x  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  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  at the 5 percent l e v e l .  Ill  V a l u e > $0.50 W i l l i n g t o pay $0.50 W i l l i n g to accept  $0.50  Total  V a l u e < $0.50  Total  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 c o m p e n s a t i o n 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 t h e 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 t h e v a r i a t i o n i n r e s p o n s e s t o t h e c o m p e n s a t i o n 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 cant.  With a h i g h d e g r e e o f c o n f i d e n c e ,  these r e s u l t s argue that  hypothetical  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 exp 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 t h e r e s u l t s of c a r e f u l l y designed hypothetical  surveys.  V a l u e > $0.50 W i l l i n g to pay, hypothetical  9  W i l l i n g t o pay, actual Total  18  V a l u e < $0.50  Total  24  33  22  31  46  64  ( T e s t 30)  .03 V a l u e > $0.50  V a l u e < $0.50  Total  Willing to accept, hypothetical  17  11  28  W i l l i n g t o accept, actual  19  15  34  Total  36  26  62  ( T e s t 31)  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, the 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 m i g h t 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 the  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 o n s t i t u t e s h i s o r her 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 l e d by the p a r t i c u l a r way i n which the problem i s  and i n p a r t c o n t r o l -  formulated.  U t i l i t y t h e o r y , which has p r o v i d e d the 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 noted 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 ' expressed  values ( S l o v i c , et al_., forthcoming).  t i o n s can be framed i n more than one way,  S i n c e most ques-  i t f o l l o w s t h a t s u b t l e changes i n  the 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  important  t o b e t t e r u n d e r s t a n d b o t h the 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 people m i g h t a d a p t p a r t i c u l a r d e c i s i o n frames. 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 the 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 of environmental  quality.  p r e f e r e n c e measures  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 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,  Tversky's  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 not 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 ' subj 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 . Three 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 compensat i o n q u e s t i o n have been t e s t e d .  A l l respondents  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 the l o c a l  environment.  P a r t i c i p a n t s i n the b a s i c payment experiment were next asked i f t h e y would agree 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 average 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 w h e t h e r 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 , they 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  experiment  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 format 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 the 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 the 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 tax c l a u s e the 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 three respondents  preceded  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 -  ( 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  the 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 , but even so i t i s t r o u b l i n g t h a t such a m i n o r 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 average responses. V a l u e > $25  V a l u e < $25  Total  W i l l i n g t o pay $25, basic  41  15  56  W i l l i n g t o pay $25, reversed  45  28  73  Total  86  43  129  ( T e s t 32)  x The same m a n i p u l a t i o n o f the compensation  =  2  1.94  q u e s t i o n was a l s o t e s t e d ,  and the 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  the f i f t y - t w o persons ( o r 8 p e r c e n t ) answering the b a s i c compensation  question  ( 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 the f i f t y - e i g h t r e s p o n d e n t s 2 t o the r e v e r s e d format 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  (24  percent)  f o r these 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 Value > $25  Value <  $25  Total  W i l l i n g to accept basic  $25,  48  4  52  W i l l i n g to accept reversed  $25,  44  14  58  92  18  110  Total  ( T e s t 33)  x 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  =  2  5.40  responses  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 evaluation.  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 average demonstrate  a h i g h e r v a l u e than w i l l  those  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 minor 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 using the b a s i c question.  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 (in the reversed format) or the prospect of a d e c l i n e in environmental quality:  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 asked 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 asked 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 compari 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 quality.  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 question. 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 taken today.  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 encourages  res-  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 relative gain.  o f p r e s e n t c o n d i t i o n s as a  S i n c e the v a l u e f u n c t i o n proposed 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 than 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 maintain the present 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 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  demonstrated  (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 demons 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 t h e two e v a l u a t i o n approaches  is significant  at the 5 percent l e v e l . V a l u e > $25  V a l u e < $25  Total  W i l l i n g t o pay $25, prevent  41  15  56  W i l l i n g t o pay $25, • maintain  32  27  59  Total  73  42  115  ( T e s t 34)  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 t h e 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 t h e s e l f - i m a g e o f the 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 passed 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 h e r 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 c o n s e q u e n c e s o f lower 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 t h e e f f e c t o f r e f u s a l i s n o t e x p l i c i t l y s t a t e d , and t h e 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 t h e l o w e r i n g o f f u t u r e levels.  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 lowered. 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 underweighted  i n comparison  and T v e r s k y , 1979), may s e r v e t o reemphasize  w i t h c e r t a i n outcomes (Kahneman this point.  Since the 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 the question. 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 tend 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 regarding the s i g n i f i c a n c e of anchoring e f f e c t s or the types 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 thei.r i n f l u e n c e . As emphasized 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 n the  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 free of anchoring bias.  On the o t h e r hand, i f i n d i v i d u a l s have not  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 is l i k e l y to increase 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 . s i t u a t i o n s were employed.  Two d i f f e r e n t  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  a f f i r m a t i v e l y or negatively to a proposed t r a d e - o f f between a i r q u a l i t y l e v e l s and a s p e c i f i e d monetary payment or o f f e r of compensation.  In these  experiments, which were p r i m a r i l y administered to u n i v e r s i t y - l e v e l students, both goods under consideration are well understood but the required exchange—weighing environmental  q u a l i t y against d i s c r e t e amounts of money--is  l i k e l y to be u n f a m i l i a r . In the second s i t u a t i o n , p a r t i c i p a n t s were asked i f they would agree to pay a designated sum of money i n order to v i s i t or to help maintain the P r o v i n c i a l Museum i n 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 a d d i t i o n to annual taxes or an entrance f e e — a r e f a m i l i a r , and the t r a d e - o f f i t s e l f , which posits the need to pay money to help operate a Museum, i s also r e a d i l y comprehensible.  I f s t a r t i n g point biases are to be  found, t h e i r influence would therefore be l e a s t s u r p r i s i n g i n the questions concerned with environmental  quality.  The r e s u l t s of the t e s t s provide strong evidence f o r the existence of pronounced anchoring biases, and t h i s conclusion holds f o r both sets of e x p e r i ments.  In t o t a l , nine of the eleven t e s t s 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 e f f e c t s a t the 5 percent level. Unfortunately, i t i s not easy to move from a demonstration of the problem to the development of a general strategy f o r improving survey design. The empirical evidence shows that when  the same question i s asked using two  d i f f e r e n t i n i t i a l values the r e s u l t s are l i k e l y to be s u b s t a n t i a l l y 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 i n d i v i d u a l ' s true value.  At the  . l e a s t , i t appears that survey approaches to the valuation of non-market goods should i n most cases employ a range of values rather than a s i n g l e "most reasonable" estimate which may only influence p a r t i c i p a n t s to confirm the  120 p r e j u d i c e s of the i n v e s t i g a t o r .  A t the most, i t would be advantageous  to  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  VII. 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 to 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.  Following 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 to 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 the 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 are 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 . It 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 to 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 i f t h e y w o u l d pay $4.00 a g r e e d t o pay $5.00.  The x  asked  f o r this difference 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 t h e 5 p e r c e n t l e v e l . Value> 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  49 •  W i l l i n g t o pay, i n i t i a l v a l u e o f $4.00 Total  $5  V a l u e < $5  Total  109  158  23  26  49  72  135  207  ( T e s t 35)  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 t h e 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 pants' expressed values.  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 b u t 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 ensure " t h a t t h e 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 . "  Three 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 t h e $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 t h e c o n t e x t which i s p r o v i d e d by t h e accompanying sums.  In t h e 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 t h e 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 h e s t a r t i n g sum and might w e l l be v a l u e d at 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 t h e 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 t h e 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 h e $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 the h i g h e r amounts ( t h a t i s , $10.00 o r $20.00).  This i n t e r p r e t a t i o n suggests  t h a t more people 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 t h e second and t h i r d v e r s i o n s than i n t h e 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 m i g h t be h i g h e r f o r t h e 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 t h e i n i t i a l amount i s $5.00. V a 1 u e > $5  V a l u e < - $5  Total  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  78  27  105  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  30  3  33  108  30  138  Total  ( T e s t 36)  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 twenty-seven  o f t h e 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 three respondents  (9 p e r c e n t ) r e f u s e d t o pay an equal amount when t h e $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 .  Similarly,  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  indicates a statistically sig-  n i f i c a n t degree o f d i f f e r e n c e , and argues i n f a v o r o f t h e p r e s e n c e o f a d e f i n ite anchoring bias.  F o r t e s t 36, which compares t h e f i r s t and second  versions  2  of t h i s question, the x t h i r d experiments,  the x  2  i s 4.12; f o r t e s t 37, which compares t h e f i r s t and i s 5.77:  both 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  123 level V a l u e > $5  V a l u e <, $5  Total  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  78  27  105  W i l l i n g t o pay, i n i t i a l v a l u e o f $10.00  31  2  33  109  29  138  Total  ( T e s t 37)  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 t h e 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 :  while nearly  h a l f (16 o f 33, o r 48 p e r c e n t ) o f t h e p a r t i c i p a n t s i n t h e f i r s t  experiment  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 t h e 5 p e r c e n t l e v e l , and argues 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 t h e two a p p r o a c h e s — w h i c h a l l aspects except the s p e c i f i e d l e v e l s o f payment—is  were i d e n t i c a l i n  r e l i a b l y altering the  expressed preferences o f survey p a r t i c i p a n t s . V a l u e > $10  Value<  $10  Total  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  17  16  33  W i l l i n g t o pay, i n i t i a l v a l u e o f $10.00  28  5  33  Total  45  21  66  ( T e s t 38)  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 t h e 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 m i g h t 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 descriptions 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 e n 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 t h e 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 C o l u m b i a n c i t i e s : and  V i c t o r i a , Vancouver, C h i l l i w a c k  Nelson. 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-users 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 n o t 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) a n d 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 t h e 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 demonstrate 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 h e x f o r t e s t 40 i s 9.87; both v a l u e s are s i g n i f i c a n t a t the 5 percent 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 significant.  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 this variation  i s 9.58, w h i c h 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 t h e 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 ' expressed values. V a l u e > $5  V a l u e d $5  Total  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  133  67  200  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  126  26  152  Total  259  93  352  ( T e s t 39)  x V a l u e > $5  V a l u e ^ $5  Total  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  133  67  200  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  86  17  103  219  84  303  Total  ( T e s t 40)  x V a l u e > $10  V a l u e < $10  c  = 9.87  Total  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  69  83  152  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  67  36  103  136  119  255  Total  = 12.01  ( T e s t 41)  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 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 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 t h e U n i v e r s i t y o f B r i t i s h Columbia  surveys 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 average 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 reminder 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 t h e form o f t h e subsequent tion questions.  valua-  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 t h e s p e c i f i e d  l e v e l s o f payment open t o each  respondent.  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 pants 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 t h e 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 ing 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 within the area.  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 the t h i r t y persons c o m p l e t i n g t h e 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. 2 x  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  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 t h e 5 p e r c e n t  level. 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 t h e 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 seem r e l a t i v e l y h i g h e r o r lower.  appears t o make i t  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 small when compared t o $20.00 but t h a t the v a l u e w h i c h 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 t h e p o i n t o f r e f e r ence. V a l u e > $25  V a l u e < $25  Total  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  41  15  56  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  28  2  30  Total  69  17  86  ( T e s t 42)  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 t h e 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 w o u l d 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 t h e 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 in 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 h e maximum payment  o p t i o n o n l y n i n e o f twenty-seven 2 t h i s amount.  With an x  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  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 t h e 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  Total  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  33  26  59  Total  ( T e s t 43)  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 compensation i n r e t u r n f o r p e r m i t t i n g lower average 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 h e minimum  or 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 t h e l o w e r l e v e l o f a i r quality. In t h i s c a s e t h e 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 h e 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 to 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 t h e 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 invisible.  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  to 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 t h e $25.00 payment a p p e a 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 compensation. Value >$25  V a l u e <• $25  Total  Willing to accept, i n i t i a l v a l u e o f $10  48  4  52  Willing to accept, i n i t i a l v a l u e o f $100  36  2  38  Total  84  6  90  ( T e s t 44)  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 importance 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 t h e 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 approach has been employed i n a number of 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 nonmarket 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 less formidable. Each o f t h e t e s t s , which e s t i m a t e t h e economic v a l u e o f t h e 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 t h e mean v a l u e p r e s e n t e d to 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 h e 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 , w h e t h e r 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  t h 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 h e 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 t h e 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 compreh 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 proved 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 t h e 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 perc e n t ) r e s p o n d i n g t o t h e 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 -  cant a t the 5 percent l e v e l . V a l u e > $5 "  V a 1 u e < $5  Total  W i l l i n g t o pay, h i g h reference scale  76  85  161  W i l l i n g t o pay, low reference scale  11  36  47  Total  87  121  208  ( T e s t 45)  x  2  = 8.55  The second e x p e r i m e n t employed t h e same two r e f e r e n c e s c a l e s b u t 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 t h e 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 t h e 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 ) agreed t o pay t h i s p r i c e when t h e 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 app 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 simultaneously b i a s i n g p a r t i c i p a n t s ' responses. V a l u e > $5  V a l u e < $5  Total  W i l l i n g t o pay, h i g h reference scale  33  35  68  W i l l i n g t o pay, low reference scale  13  52  65  Total  46  87  133  ( T e s t 46)  x  = 8.11  2  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 average 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 the 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 twentytwo 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. in expressed  v a l u e s y i e l d s an x  at the 5 percent l e v e l .  This difference  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  It i s i n t e r e s t i n g to note that these r e s u l t s are  t h e r e f o r e l e s s p e r s u a s i v e than those p r e s e n t e d f o r e i t h e r o f the 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:  reference  both the 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 the exchange under c o n s i d e r a t i o n suggested  t h a t the e v i d e n c e o f  of  anchoring  b i a s e s m i g h t 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  Total  W i l l i n g t o pay, h i g h reference scale  23  11  34  W i l l i n g t o pay, low reference scale  22  23  45  Total  45  34  79  (Test  47)  x  2.73  2  =  INFLUENCE OF PROCESS VARIABLES T h i s s e c t i o n d i s c u s s e s the 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 the 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 the s p e c i f i c a c t i v i t y i n which one i s engaged. of decision-making  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  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  133  s t r e s s t h a t the 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 the "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 A sense o f t h e s e c o n c e r n s  behavior.  i s conveyed by the term " t r a n s a c t i o n s  c o s t s , " which a p 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 the 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 to 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 times 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 the way i n which a consumption d e c i s i o n i s undertaken  or avoided:  j u s t as I may d o n a t e t o c h a r i t i e s f o r  a l t r u i s t i c reasons 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 wealth. The d i s c u s s i o n o f Chapter 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 .  This provides a conceptual  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 through 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 e l e m e n t s 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 s t a t e - - m y 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 not 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 weighing o f process 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 increase.  Even i f the impetus f o r the 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 person who debate's whether t o save s t r i n g o r p a p e r bags i n c a s e t h e y are 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 in environmental  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 the 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 phrased 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 to 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  the person 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:  the 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 the 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 cumstances.  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 the m a i n t e n a n c e o f the s t a t u s quo  and enhances t h e p o s s i b i l i t y f o r r e g r e t o r d i s a p p o i n t m e n t  which i n t u r n  135 i n c r e a s e s t h e c o s t s a s s o c i a t e d w i t h g i v i n g up r i g h t s t o a r e s o u r c e o r an experience.  Y e t i t i s a l s o t h i s a s p e c t o f many manner v a r i a b l e s which e n -  courages p o l i t i c i a n s , a d v e r t i s e r s o r interviewers to s t r e s s that i n d e c i s i o n or i n a c t i v i t y also constitutes a choice.  As a r e s u l t , any c h i l d who goes  hungry o r any s p e c i e s which i s e n d a n g e r e d may be p e r c e i v e d as my p e r s o n a l r e s p o n s i b i l i t y and my f a u l t . T h e r e e x i s t s a l a r g e gap, however, between c a s u a l d e s c r i p t i o n s o f p o s s i b l e p r o c e s s e f f e c t s and t h e r i g o r o u s a n a l y s i s o r p r e d i c t i o n o f t h e i r occurrence.  L i t t l e experimental  evidence e x i s t s a t present to a s s i s t i n the  c l a r i f i c a t i o n o f process i n f l u e n c e s .  In t h i s s e c t i o n I t h e r e f o r e p r e s e n t t h e  r e s u l t s o f two s e r i e s o f e x p e r i m e n t s d e s i g n e d t o t e s t f o r t h e p r e s 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 and r e g r e t .  A f i r s t s e t o f e x p e r i m e n t s compares t h e  r e s p o n s e s o f two groups o f p a r t i c i p a n t s who were informed e i t h e r t h a t they had been randomly s e l e c t e d as p a r t o f a s t u d e n t r e s e a r c h p r o j e c t o r t h a t they had been c h o s e n as p a r t o f a s m a l l sample g r o u p , w i t h t h e i r r e s p o n s e s perhaps p r o v i d i n g an i n p u t t o t h e f o r m a t i o n o f governmental p o l i c i e s . I f r e s p o n s i b i l i t y c o s t s a r e s i g n i f i c a n t , r e s p o n d e n t s i n t h e l a t t e r t e s t s h o u l d be e n c o u r a g e d t o p l a c e a h i g h e r v a l u e on e n v i r o n m e n t a l  quality.  A second group  o f e x p e r i m e n t s compares t h e r e l a t i v e a v e r s i v e n e s s o f a number o f d i f f e r e n t unpleasant  e v e n t s a b o u t w h i c h t h e s u b j e c t i s made t o f e e l t h a t he o r she  e i t h e r bears no r e s p o n s i b i l i t y o r may be p a r t l y t o blame. p r o c e s s c o n s i d e r a t i o n s a r e shown t o s i g n i f i c a n t l y i n f l u e n c e expressed  In both c a s e s , respondents'  values.  T e s t s 48 and 49 ( Q u e s t i o n n a i r e s 3a and 3b; 3c a n d 3d) These two t e s t s e v a l u a t e 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 i n o r d e r t o prevent, o r t h e i r w i l l i n g n e s s t o accept compensation i n return f o r p e r m i t t i n g ,  136 a h y p o t h e t i c a l 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 w i t h i n the Vancouver area.  The t e s t s were c o n d u c t e d on s t u d e n t p o p u l a t i o n s a t t h e 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 and a r e i d e n t i c a l i n terms o f d e s c r i p t i v e  information,  q u e s t i o n f o r m a t s and payment l e v e l s e x c e p t f o r the i n c l u s i o n o f an  introduc-  t o r y s e n t e n c e which a l t e r s the r e s p o n s i b i l i t y c o s t accompanying a p a r t i c i p a n t ' s expression of value.  In one c a s e , the r e s p o n d e n t i s informed  t h a t he o r she  has been s e l e c t e d as p a r t o f a s m a l l sample o f V a n c o u v e r a r e a r e s i d e n t s t h a t the r e s p o n s e s which a r e g i v e n c o u l d " s e r v e as an i n p u t t o the of Government.policies."  and  formation  In the low r e s p o n s i b i l i t y v e r s i o n , r e s p o n d e n t s are  i n s t e a d i n f o r m e d t h a t they have been randomly s e l e c t e d as p a r t o f a l a r g e sample and t h a t t h e i r answers w i l l " s e r v e as an i n p u t t o a U n i v e r s i t y o f B r i t i s h Columbia student research p r o j e c t . " i t i s expected  F o l l o w i n g the p r e v i o u s  discussion,  t h a t the sense o f h i g h e r r e s p o n s i b i l i t y c o s t s which i s c o n -  veyed i n the f i r s t v e r s i o n w i l l encourage r e s p o n d e n t s t o i n f l a t e the  value  which t h e y p l a c e on the m a i n t e n a n c e o f h i g h l e v e l s o f a i r q u a l i t y . The r e s u l t s o f t h e e m p i r i c a l t e s t s tend t o s u p p o r t t h i s  hypothesis,  a l t h o u g h n e i t h e r 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 the 5 p e r c e n t l e v e l .  Res-  ponses to 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 , shown i n t e s t 48, a r e most p e r suasive.  W h i l e n i n e t e e n o f t h i r t y - t h r e e p a r t i c i p a n t s (58 p e r c e n t ) i n the  h i g h r e s p o n s i b i l i t y v e r s i o n 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 , o n l y e l e v e n o f the t h i r t y people q u e s t i o n e d  in  the low r e s p o n s i b i l i t y t e s t (37 p e r c e n t ) a g r e e d t o pay t h i s amount. V a l u e > $25  V a l u e < $25  W i l l i n g t o pay, h i g h responsibility W i l l i n g t o pay, low responsibility  19  14  11  19  Total  30  33  Total 33  • -  30 63  (Test  48)  9  \  =  2.78  137 The r e s u l t s o f t h e compensation  experiment a r e l e s s strong but never-  theless provide a d d i t i o n a l evidence that the perception o f r e s p o n s i b i l i t y c o s t s may i n f l u e n c e an i n d i v i d u a l ' s e x p r e s s i o n o f v a l u e .  While'  o n e - t h i r d (33 p e r c e n t , o r 18 o f 54) o f t h o s e q u e s t i o n e d i n t h e low r e s p o n s i b i l i t y sample v a l u e d t h e p o t e n t i a l 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 a t l e s s than $25.00, o n l y 19 p e r c e n t (6 o f 32) o f t h e p a r t i c i p a n t s i n t h e h i g h r e s p o n s i b i l i t y e x p e r i m e n t were u n w i l l i n g t o pay $25.00.  The x  f o r this difference  i s 2.08, which 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 . V a l u e > $25  V a l u e < $25  Total  W i l l i n g t o accept, high responsibility  26  6  32  W i l l i n g t o a c c e p t , low responsibility  36  18  54  Total  62  24  86  ( T e s t 49)  x  2  = 2.08  T e s t s 5 0 , 5 1 , 52 and 53 ( Q u e s t i o n n a i r e s 5a and 5b; 6a and 6b; 7 a , 7b and 7c) Whereas t h e p r e v i o u s t e s t s e v a l u a t e t h e 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 on p a r t i c i p a n t s ' e v a l u a t i o n o f a non-market r e s o u r c e , t h i s group o f f o u r e x p e r i m e n t s seeks t o i s o l a t e t h e i n f l u e n c e o f r e g r e t . present s e t o f experiments  The f o c u s i n t h e  i s on p a r t i c i p a n t s ' sense o f s e l f - b l a m e f o r n o t  h a v i n g t a k e n an a c t i o n a t some time i n t h e p a s t when an o p p o r t u n i t y was a v a i l a b l e , whereas t h e emphasis i n t h e p r e c e d i n g t e s t s was on t h e a v o i d a n c e o f potential future costs.  Regret i s t h e r e f o r e l i n k e d w i t h a l a c k o f i n e v i t a b -  i l i t y , and i n g e n e r a l w i l l i n c r e a s e w i t h t h e e x t e n t t o which i t i s b e l i e v e d t h a t a s i t u a t i o n c o u l d have been changed i f d i f f e r e n t a c t i o n s had been undertaken.  138 A l l t h r e e t e s t s employ an a v e r s i v e n e s s s c a l e which was o r i g i n a l l y employed by Kahneman and T v e r s k y ( 1 9 7 9 ) , a l t h o u g h many o f t h e e v e n t s which p a r t i c i p a n t s a r e asked t o e v a l u a t e as w e l l as the p a r t i c u l a r c o n t e x t w i t h i n which r e s p o n s i b i l i t y c o s t s a r e a s s e s s e d were d e v e l o p e d f o r t h e p u r p o s e s o f t h i s study.  Each e x p e r i m e n t a s k s r e s p o n d e n t s t o s t a t e the 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 by r e c o r d i n g the s t r e n g t h o f t h e i r wish t h a t each n o t happen t o them on an open-ended s c a l e o f 0 t o 20.  A reference event  ("Having a stomach f l u f o r a week, w i t h nausea and f e v e r " ) i s p r o v i d e d t o s e r v e as an a n c h o r and a s s i g n e d a s c o r e o f 10.  In each c a s e one o f the e v e n t s  (always l i s t e d as t h e n i n t h i t e m ) was v a r i e d i n o r d e r t o t e s t the i n f l u e n c e of a d d i t i o n a l c o s t s a s s o c i a t e d with the presence of r e g r e t . T e s t 50 compares p a r t i c i p a n t s ' r e s p o n s e s t o two q u e s t i o n s . The f i r s t d e s c r i b e d a s i t u a t i o n i n which t h e r e s p o n d e n t r e a d t h a t e n v i r o n m e n t a l q u a l i t y had d e c l i n e d i n Vancouver t o t h e p o i n t t h a t a v e r a g e a i r q u a l i t y l e v e l s were the w o r s t o f any m a j o r C a n a d i a n c i t y .  Each p a r t i c i p a n t t h e n i n d i c a t e d the  r e l a t i v e aversiveness o f t h i s h y p o t h e t i c a l event.  A second v e r s i o n posed the  same s i t u a t i o n but added t h a t t h e r e s p o n d e n t * c o u l d have v o t e d f o r the c r e a t i o n o f an " e n v i r o n m e n t a l q u a l i t y " t a x i n l a s t y e a r ' s e l e c t i o n s but n e g l e c t e d t o f i l l i n a b a l l o t t h a t day because t h e y were p r e s s e d f o r t i m e .  Whereas the  mean v a l u e r e c o r d e d i n t h e f i r s t e x p e r i m e n t was 10.7, the mean i n the second t e s t was 13.9.  On t h e b a s i s o f a t w o - t a i l e d t - t e s t and a t e s t s t a t i s t i c o f  2.70, we a r e p e r m i t t e d t o c o n f i d e n t l y r e j e c t t h e n u l l h y p o t h e s i s t h a t t h e r e i s no d i f f e r e n c e i n t h e two v e r s i o n s a t a .05 l e v e l o f s i g n i f i c a n c e . Presence of Regret  Yes  No  Number o f r e s p o n d e n t s  44  43  Mean v a l u e  10.7  13.9  Standard d e v i a t i o n  5.19  5.42  ( T e s t 50) t = 2.70  139 T e s t 51 employs a s i m i l a r format 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 f o r t h e s i g n i f i c a n c e o f r e g r e t i n i n d i v i d u a l s ' e v a l u a t i o n o f non-market r e s o u r c e s . A 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 t h e d e v e l o p m e n t o f new mines and t o w n s i t e s i n n o r t h e r n B r i t i s h Columbia  " i s threatening the continued survival o f several  r a r e s p e c i e s o f l a r g e mammals."  The t e s t a g a i n i n v e s t i g a t e s whether t h e  r e l a t i v e a v e r s i v e n e s s o f t h i s s i t u a t i o n can be a f f e c t e d by t h e m a n i p u l a t i o n of respondents'  sense o f r e g r e t r e s u l t i n g from t h e i r f a i l u r e t o r e g i s t e r t h e i r  views on t h e s u b j e c t i n a r e c e n t e l e c t i o n . I f s o , t h e i r e x p r e s s e d w i l l i n g n e s s t o pay would n o t o n l y i n c l u d e v a l u e s a s s o c i a t e d w i t h p r e s e r v a t i o n o f t h e a n i m a l s b u t a l s o any a d d i t i o n a l c o s t s a s s o c i a t e d w i t h t h e i r d e s i r e t o a v o i d a sense o f r e g r e t . The r e s u l t s o f t h i s e x p e r i m e n t of process concerns.  a g a i n emphasize t h e s u r p r i s i n g s t r e n g t h  Whereas t h e mean v a l u e g i v e n f o r t h e high r e g r e t ques-  t i o n n a i r e was 12.4, t h e mean o f t h e a l t e r n a t i v e v e r s i o n was o n l y 8.8.  With a  t - s t a t i s t i c o f 2.29, t h e n u l l h y p o t h e s i s — t h a t t h e r e i s no d i f f e r e n c e i n t h e two v e r s i o n s — c a n a g a i n be r e j