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Using local knowledge to model asymmetric preference formation in willingness to pay for environmental services
1Socio-Economics, Macaulay Institute, Craigiebuckler, AB158QH Aberdeen, UK. klaus.glenk@sac.ac.uk
Journal of Environmental Management
|October 12, 2010
Summary
Environmental valuation models show that people value gains and losses differently. Accounting for this asymmetric preference formation provides more accurate willingness to pay (WTP) estimates for conservation programs.
Area of Science:
- Environmental Economics
- Behavioral Economics
- Conservation Science
Background:
- Discrete choice models are widely used for environmental valuation.
- Traditional models often assume symmetrical preferences for gains and losses.
- Asymmetric preference formation, where individuals value gains and losses differently, is increasingly recognized in behavioral economics.
Purpose of the Study:
- To develop and apply an approach to account for asymmetric preference formation in discrete choice models for environmental valuation.
- To assess the impact of asymmetric preferences on willingness to pay (WTP) estimates for environmental changes.
- To inform local strategies for biodiversity conservation by providing more accurate welfare measures.
Main Methods:
- Utilized data from a case study on preferences for environmental change in Indonesia.
- Defined individual-specific status quo using local knowledge to frame environmental services as gains or losses.
- Estimated choice models with separate parameters for increases and decreases in attribute levels.
- Derived bidirectional willingness to pay (WTP) indicators relative to the individual-specific status quo.
Main Results:
- Found clear evidence of asymmetric responses to increases and decreases in environmental service attributes relative to the status quo.
- Demonstrated that ignoring asymmetric preference formation can lead to biased WTP estimates and welfare measures.
- Highlighted that accounting for both asymmetric preference formation and preference heterogeneity improves model insights.
Conclusions:
- Asymmetric preference formation is a significant factor in environmental valuation and must be considered for accurate economic assessments.
- Ignoring this asymmetry can lead to biased policy recommendations and suboptimal conservation strategies.
- Integrating asymmetric preferences and heterogeneity into choice models offers valuable insights for developing effective local conservation strategies.
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