Effects of payment vehicle non-attendance in choice experiments on value estimates and the WTA–WTP disparity

ABSTRACT

In this paper, we argue that value estimates obtained from choice experiments suffer from hypothetical bias, caused by part of the respondents ignoring the payment vehicle in making their choices. We show that this particular form of non-attendance can be substantial, pushes down the estimated payment vehicle parameter, and causes an upward bias in value estimates. Moreover, payment vehicle non-attendance affects willingness to accept (WTA) more than it does willingness to pay (WTP). As a consequence, the WTA–WTP disparity decreases when non-attendance is accounted for, with disparities decreasing by at least 50%. The patterns in findings are by and large robust to exclusion of systematic status quo choices and to alternative model specifications.

KEYWORDS:

• Hypothetical bias
• environmental valuation
• value estimates
• payment vehicle
• attribute non-attendance
• WTA–WTP disparity

JEL:

• C25, Q51

Acknowledgements

I thank Darla Hatton MacDonald, Mark Morrison and Mary Barnes for sharing their choice experiment data, Danny Campbell for useful comments and suggestions on an earlier draft of the paper, and an anonymous reviewer for highly constructive comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Another interesting choice experiment is the one by Hu, Adamowicz, and Veeman (2006), but data used for this study were no longer available due to privacy restrictions.

2. Note that the asymmetry of attribute levels and especially the payment vehicle in experiment 3 implies that we cannot interpret the resulting WTA/WTP disparity as a measure of loss aversion. However, effects of controlling for payment vehicle non-attendance can still be used to test our hypotheses.

3. For experiment 2, we exclude the results on the alternative specific constant (ASC), both for WTP and WTA. Although the pattern for the ASC parameters is the same as for the other attributes, the ASC coefficient itself is very sensitive to the type of model and model specification, and, therefore, the changes in value estimates are quite different than those for the other attributes.

Additional information

Funding

The author acknowledges funding from the European Commission seventh Framework Programme [grant number FP7-ENV-2012-308393-2] (OPERAs, http://www.operas-project.eu/).