Valuing externalities from water supply: Status quo, choice complexity and individual random effects in panel kernel logit analysis of choice experiments

Abstract

Choice experiments are often implemented with choice sets including one alternative depicting the status quo. Utility from status quo is experienced by the respondent, while utility associated with experimentally designed hypothetical alternatives is only conjectured by respondents. The effects of explicitly accounting for such a difference in the econometric analysis of the data are often unreported, or limited to fitting a ‘status quo’ constant. The paper proposes a model that explicitly accounts for these effects and attempts their decomposition using data from two choice modelling exercises designed to value the provision of environmental goods. Preferences for change versus status quo are explored with standard specifications along with a less usually applied error component analysis via mixed logit. The results suggest that alternatives offering changes from status quo do not share the same preference structure as the status quo alternative, and that estimates of spread parameters in zero-mean error components can be decomposed conditional on respondents' socio-economic characteristics. It is argued that these findings have implications for practitioners and their stance towards the strategies for the econometric analysis of choice modelling data for the purpose of valuation.

Acknowledgements

The views expressed in this paper are those of the authors and should in no way be attributed to their employers.