Self Image and Valuation of Public Goods: Stated versus Actual Willingness to Pay

1. Self Image and Valuation of Public Goods: Stated versus Actual Willingness to Pay Olof Johansson-Stenman Department of Economics, Göteborg University Henrik Svedsäter Organisation Behaviour, London Business School hsvedsater@london.edu

2. Background Hypothetical surveys to assess Willingness To Pay (WTP) for public goods, typically environmental resources Contingent Valuation (CVM) Choice Experiments (CE) Main question; do hypothetical values properly reflect real economic commitments? HypWTP = RealWTP (Carlsson & Martinsson, 2001; Cameron et al., 2002) HypWTP > Real WTP, particularly for public goods and in between-subject tests (List & Gallet, 2001; Murphy et al., 2004)

3. Background (ctd) Why do the results differ? What motivates people to contribute toward public goods? Values here assumed to reflect two dimensions; Instrumental value / utility of an environmental good or project; actual change in G - conventional model Self-image of contributing towards a ’good cause’ Moral motivation (Brekke et al., 2002) ’Warm glow’ of giving (Andreoni, 1989; 1990) Symbolic value (Katz, 1960; Kahneman & Knetsch, 1992) Self-signalling (Bodner & Prelec, 2003)

4. Background (ctd) Hence, for issues with moral implications, contributions made partly to improve or maintain an image as a good person / honourable citizen Present also under conditions of anonymity (internally motivated) - hence, not identical to self-presentation effects Carries different weights in hypothetical versus real scenarios

5. Model and Predictions Public goods: U = u (x, G, s) where x = monetary costs, G = provision of good, and s = self-image Self-image depends on (i) the degree to which the individual acts according to her ethical views, and (ii) the estent to which she is honest toward herself Hypothetical scenarios: no trade-offs between x, G and s; WTP reflects maximisation of self-image, s Real scenarios; WTP a trade-off between x, G and s (s costly) H1: WTPHyp. > WTPReal

6. Model and Predictions Private goods: U = u (x, G) H2:WTPHyp. = WTPReal

7. Experimental design Two sample groups: A Hypothetical Choices B Real choices Each subject made 16 pair-wise choices 8 reflecting a trade-off between (i) money to yourself, and (ii) a restaurant voucher valid at a local restaurant - private good 8 reflecting a trade-off between (i) money to yourself, and (ii) a donation made to WWF - public good Altogether 32 unique choice set constructed, reflecting five levels of own monetary payoff (0, 40, 80, 120, 160kr), and five levels of the private and public good, respectively (0, 60, 120, 180, 240kr)

8. Experimental design } Alt. A +40kr in own payoff, but –120kr in voucher value } Alt. A +120kr in own payoff, but –240kr in donation One choice set randomly chosen to determine actual payoffs and voucher value / donation Double-blind procedure to ensure anonymity of participants

9. Results (n=160)

10. Parametric analysis * and ** denote significance at the 0.05 and 0.01 level, respectively. ,

11. Clustered robust std errorsFixed effects logit Restaurant WWF Restaurant WWF MWTPhyp 0.59 (0.024) 0.66 (0.025) 0.61 (0.048) 0.67 (0.051) MWTPreal 0.54 (0.023) 0.47 (0.022) 0.55 (0.045) 0.47 (0.043) Estimation of MWTP – random utility framework where DE is the difference in donations across alternatives A and B, and ,and xi is the difference in own payoff between alternatives MWTP: how much can be taken away from the indvidual for each $1 given to G, while leaving her at the same utility level?

12. Conclusions H1 and H2 supported: WTPHyp. > WTPReal for public but not private good Provision toward a good with moral implications tend to induce self-image effects, which bias hypothetical statement upwards Problematic for public-policy analysis Results correspond to theorizing by Andreoni (1989), Kahneman & Knetsch (1992), Brekke et al. (2002), Murninghan et al. (1996) Conventional model not complete description of behaviour Model also explains results of meta-analyses Are small-stake experiments representative of behavior involving larger financial trade-offs? Is a larger hypothetical bias likely outside the experimental context?