Stated Preference

1. Stated Preference 2010

2. Stated • Means you ask somebody about something rather than watch them do something. • You can lie.

3. Passive use • I love wolves existence but I don’t do anything at all with them • I don’t contribute to wolf organizations • I don’t go to Yellowstone to see them • I just love them while sitting alone in my armchair • Travel cost gives a value for me of zero for wolves.

4. Option • One day I might want to go see wolves in Yellowstone. • I am willing to pay for the option to see them. • An option is the right and not the obligation. • A theatre ticket is the right to see the play, but the author will not come with a gun to force you to see it.

5. Money • First talk to them about money and how it could be used for other projects.

6. Background • Give the subjects some context for the project that will be proposed. • Then tell respondent about wolves and their role in ecosystem. • Show them pictures of wolves, yellowstone, and excess herbivory

7. So tell about a project • Describe a specific project • Allow them to run free in Yellowstone • Need money to pay for dead sheep

8. And a specific payment method • A surcharge on sales tax for meat • An income tax surcharge • A surcharge on sales tax for environment texts

9. Reasons to Vote for and Against • Remind the subject that there are good reasons to vote for or against the project. • Trying not to convey the attitude that all good people are for a meat tax. • (A good reason to have disinterested people, not the investigator, ask the questions.)

10. The Question • Open ended: • How much would you be willing to pay to make yellowstone a wolf haven? • Referendum: • Would vote for a surcharge on your income tax of $X to support the wolf indemnification program so that Yellowstone can be a wolf haven? • Choose x to be different numbers for different people to trace a demand curve.

11. The debrief • Ask about • Income • Education • Family status • Etc • Use to show how characteristics affect choice. • Would wonder about survey if wolves were an inferior good and men loved them more than women

12. Lies • You want more wolves in Yellowstone and are truly willing to pay $50. • You know that the WTP measure computed from the survey will determine the number of wolves. • What number do you give as an answer to how much will you pay? • Do you say yes to the referendum at $60?

13. How to analyze discrete choice • Yes or No votes to save the wolves • Take bart, bus or drive • etc.

14. Cumulative and Density: What percent above?

15. Random Utility model • U = a E + b I • E # of wolves • I Income a and b are parameters • Two cases, with and without improvement • U1 = aE1 + b I • U2 = aE2 + b (I-P) • P is payment

16. Pick the best • Says yes to referendum if • U2 > U1 • a(E2-E1) –bP > 0 • If people are a little different • ei is the little bit of difference in wolf liking • U2 = aE2 + b(I-P) +ei • U2 > U1 means • a(E2-E1) –bP + ei > 0

17. Who says yes • a(E2-E1) –bP + ei > 0 • All those who have e’s • ei> -a (E2 – E1) + bP • So for each P we will have some fraction that says Yes and some that says NO. • We choose a and b to make the predicted fractions as close as possible to the actual fractions.

18. Wolf value • Now we have the parameters a and b. • U = a E + b I • So 1 wolf increase U by a • $1 increase U by b • U constant is 1 wolf up and $a/b down • Value of a wolf is a/b!

19. Conjoint Analysis • Two or more variants on the project. • Garden with 30% native plants • Garden with 100% native plants • Garden with no native plants. • Attributes • Intensity of color display • Water use • Cost

20. Alternatives have different attributes • No native • Intense color, low cost, high water • 20% • intense color, high cost, medium water • All native • Dull, low cost, low water

21. Utility depends on attribs • Ui= a * colori + b * costi + c * wateri • Where i = all native, non-native, 20% native • Utility of the alternative depends upon the quantity of the attributes and their valuation, a, b,c. • We ask people to choose an alternative and use RUM to find the a, b, c that get us predictions close to the fraction that actually chose the alternatives

22. Advantage • Learn the value of the underlying attributes. • Does the saved water drive peoples use of native landscape? • Are people color freaks? • Is it all about the pocketbook?

23. Criticism of SP in general • Background. • The Exxon Valdez spawned a huge litigation battle. Exxon realized that contingent valuation had the potential to make every spill a company threatening situation. Arm chair environmentalists would have to be paid. • Economics profession was heavily involved in either defending or attacking. • Michael Hanneman and Richard Carson were on the side of making the companies pay.

24. Hypothetical bias • You don’t really have to pay with a CV study. • There are studies where both CV and revealed preference have been done and CV doesn’t generally overstate the revealed preference answer. • e.g. Do a cv study on the value of hunting licenses. Then send the licenses out with a check and say return one.

25. Scope • If you would pay $20 to save one lake, would you pay $20,000 to save 1,000 lakes? • $26 to clean up local water and $68 to clean up all water? • Are these internally inconsistent? • Probably not. Willing to pay less for each additional lake, WTP more for local than far away.

26. Experimental • Pay people to taste SOA. It is bitter. • Give people $10. If a majority says yes, every one of them gives up $5 and gets a piece of sports memorabilia. Compare to a CV experiment, hypothetical. • External Validity —do these experiments tell us anything about the world at large or only students and sports memorabilia fans?

27. A Pitch for Marketing • I have a new pizza. Should I be marketing it which costs $25 million or should I forget it? • Marketing uses techniques like those above—surveys and experiments to learn about demand. • Unlike our environment business, they learn what true demand is when they put the pizza on the market.