Assessing the values of public goods in the fields of environment, culture, transportation, and in other areas often relies on survey-based methods, especially when the passive use of the good substantially contributes to its value. Contingent valuation (CV) Here, we use the term “contingent valuation” in line with the nomenclature for stated preference research as proposed by Carson and Louviere (2011). Specifically, in our usage, “contingent valuation” is independent of any elicitation method and, thus, it encompasses, among others, single binary choice questions and discrete choice experiments consisting of a sequence of multiple choice questions.
Recent theoretical and empirical studies suggest that survey consequentiality plays a key role in incentivising respondents to truthfully reveal their preferences. Survey consequentiality implies that respondents believe in the real consequences that may follow from the survey result. Following the recent guidelines for stated preference research (Johnston
Several empirical studies shed light on the importance of survey consequentiality for truthful preference elicitation. They either examine the influence of the information provided directly to respondents about the probability of the survey result actually being implemented on their stated preferences (for example, Carson, Groves, and List 2014; Mitani and Flores 2012) or they analyse the effect of the respondents’ perceptions about the consequential nature of the survey on their responses (for example, Hwang, Petrolia, and Interis 2014; Interis and Petrolia 2014; Vossler, Doyon, and Rondeau 2012). The conclusions about the impact of consequentiality on the elicited preferences are mixed. Some researchers report that the estimates of the willingness to pay for a considered policy increase with the strength of the belief in consequentiality (Czajkowski
Our model offers a possible explanation of the observed incongruence in the empirical findings. The analysis is conducted in the context of a CV survey framed as an advisory referendum, in the sense that the yes-no votes declared in the survey referendum advise policymakers on the actions preferred by the voting population. The referendum format has long been recommended in CV studies (Arrow
The main contribution of our paper is that it provides a combined theoretical framework that disentangles the effects of various aspects of perceived consequentiality on truthful preference disclosure. What further differentiates our study from the existing literature is that we conduct the analysis in the context of a survey that involves an advisory referendum with a coercive payment mechanism. A coercive mechanism imposes payment for the provision of a public good on all individuals in the population upon policy implementation. Specifically, we do not apply a voluntary contribution vehicle (used, for example, by Mitani and Flores 2014), which may be vulnerable to free-riding. Moreover, in line with the received literature (Forbes
We show that in order for a respondent to reveal his true preferences in an advisory CV referendum, the perceived impact of his vote on the probability of the authorities undertaking the proposed policy should not be negligible. This impact may appear to be too weak to ensure the incentive compatibility of a CV survey when the respondents have good knowledge or well-defined expectations about the distribution of preferences towards the considered policy project in the voting population and when they believe that the probability of the authorities’ decision to adopt the project increases non-linearly in the number of votes cast in favour of it. Moreover, our model suggests that for truthful preference disclosure, the subjectively perceived probabilities of the successful provision of the public good and the payment collection should be in a particular relationship to each other, which varies across respondents’ risk preferences. We find that risk-neutral respondents vote in line with their actual preferences if, in their perception, the probability of successful provision and the probability of payment collection do not differ significantly from each other, whereas risk-averse respondents vote truthfully if the probability of successful provision exceeds the probability of payment collection.
The conditions for the incentive compatibility of a CV study postulated in the literature also include other aspects in addition to consequentiality (Carson and Groves 2007; Carson Recent advancements have defined incentive-compatibility conditions for CV surveys that employ other value elicitation formats than a single yes-no question. See, for example, Vossler
The remainder of this paper is structured as follows. Section 2 reviews the evidence from the current literature on the impact of consequentiality on stated preferences. Section 3 develops a conceptual model that distinguishes the separate aspects of consequentiality (namely, the consequentiality of one’s own vote, the provision consequentiality and the payment consequentiality) and shows how the subjective perceptions of each of the aspects of consequentiality influence the incentive properties of an advisory CV referendum. Section 4 concludes with a brief summary and recommendations on how the quality of stated preference research might be improved by correctly controlling for respondents’ the perceptions of consequentiality.
The recommendations of the National Oceanic and Atmospheric Administration (NOAA; Arrow See the meta-analyses of List and Gallet (2001), MacMillan (2004), Murphy
The concept of consequentiality offers a possible solution to how to make the advisory CV surveys incentive compatible. This is because the concept extends beyond the strict division between the binding and non-binding nature, allowing for a probabilistically binding character. Respondents in a consequential survey know that the chances of implementing a public policy project increase with the number of votes in favour of it. The notion of consequentiality closely corresponds to the long-established recommendation for realism in CV research (Mitchell and Carson 1989).
Landry and List (2007) claim that consequentiality can easily be introduced in a survey by simply informing the respondents that their choices will influence the final decision of policymakers in a probabilistic way. Taking this statement as true, researchers examine the role of consequentiality by comparing the preferences of respondents elicited in probabilistic referenda that differ in the chances of being binding (Carson
An alternative approach to test whether consequentiality affects the incentive properties of a CV survey is to compare the stated preferences between groups of respondents that differ in their beliefs of the survey consequentiality. The respondents’ perceptions of consequentiality are typically obtained from their self-reports to a direct question about how strongly they believe that the survey outcome will be used for future policy purposes (Czajkowski
Mitani and Flores (2014) suggest that two separate aspects of consequentiality should be distinguished: the probability of a public good provision and the probability of payment collection. Hereafter, we refer to these two probabilities as provision consequentiality and payment consequentiality, respectively. Brent
The distinction between provision consequentiality and payment consequentiality corresponds to the consideration in the stated preference literature about the impacts of uncertainties about provision and payment on responses in CV surveys. Krupnick and Adamowicz (2007) note the important role of uncertainty about provision and recommend excluding from the analysis respondents who do not believe that the proposed policy change will work. Several researchers address the issue of provision uncertainty empirically. Champ
Bohm (1972) conducted one of the earliest stated preference empirical studies on the role of cost uncertainty. Several subsequent studies report on the importance of uncertainty about the project cost for elicited preferences in CV surveys. Champ
The differentiation between subjectively perceived provision and payment probabilities offers a potential explanation for the mixed empirical evidence on the direction of influence of consequentiality on elicited preferences. For instance, Herriges
Mitani and Flores (2014) develop a theoretical model that depicts the role of the perceived probabilities of the successful provision of a public good and of the payment collection on stated preferences. However, they employ voluntary contributions as a payment mechanism, which is prone to free-riding and, thereby, is not incentive compatible. In contrast, in this paper, we present the impact of the two probabilities on the incentive properties of an advisory CV referendum with a coercive payment mechanism (such as tax). The incentive properties of a referendum vehicle that is subject to consequentiality are also modelled by Mitani and Flores (2012), although their approach does not introduce the separate probabilities of provision and payment, including only the probability of the referendum being binding as a whole. We relax this assumption, exploring how the relationship between the probabilities of successful provision and payment influences the incentive compatibility of advisory CV referenda.
Additionally, we introduce endogeneity into the probabilities of successful provision and payment, making them dependent on a respondent’s own valuation of the policy project, which corresponds to recent empirical evidence. Herriges
In this section, we develop a model that depicts how respondents’ subjective perceptions of survey consequentiality impinge on the incentive properties of a stated preference survey which involves an advisory CV referendum.
We consider a CV study that employs a single-shot, binary (yes-no) choice, advisory referendum in which members of population Naturally, for some public goods, it may be difficult for an individual to clearly determine the value of the good to him. Then,
The advisory character of the referendum means that the referendum advises the authorities of what decision to take about the considered project: the larger the share of votes cast in favour of the project, the more likely it is that the authorities will choose to implement the project. Let
It is important to differentiate the perceived probability of the authorities choosing to implement the project (expressed by
Due to uncertainty about the preferences of other members of Naturally, for some public goods, it may be difficult for an individual to clearly determine the value of the good to him. Then,
where
Then,
and
where
As a rule, the authorities’ choice to undertake the project should result in each member of the population concerned being required to pay the cost of the project implementation and each obtaining the value that he assigns to the public good provided within the project. Here, we implicitly assume that when the authorities adopt the project, they do, indeed, attempt to realise it. However, the population members may hold subjective beliefs about the extent to which the project, when implemented, will accomplish its goals: whether the public good considered in the project will be successfully provided and whether the payment to cover the project costs will actually be collected. We refer to these beliefs as perceptions of provision consequentiality and payment consequentiality, respectively, and we measure them as the subjectively perceived probabilities of the successful provision of the good and the payment collection. The perceptions of the two aspects of consequentiality are likely to influence respondents’ voting decisions in the advisory CV referendum, which we show in our model.
The probabilities of the successful provision of the good and the payment collection considered here are those as perceived by respondents before the referendum is complete, because perceptions formed at that time can impact on the respondents’ voting choices. Naturally, these probabilities can change after the referendum outcome is announced or in the wake of other events following the referendum, however, this is not related to our inquiry into the voting behaviour. Furthermore, the two probabilities are assumed to be independent of the expected outcome of the referendum. This is because our framework assumes that when the authorities decide to undertake the project, they do, indeed, place effort into carrying it out. The expected share of “yes” votes in the referendum affects the authorities’ (binary) decision of whether to implement the project but it does not affect, for example, the amount of effort the authorities will put into the project realisation. Consequently, the share of “yes” votes does not influence the probabilities of the successful provision of the good and the payment collection.
A few examples are provided to facilitate the understanding of separating provision consequentiality and payment consequentiality. Subjectively perceived provision consequentiality may be low when a respondent thinks that the goals of the proposed project are set too high and, thus, are unlikely to be achieved. Say, a project assumes that in the wake of specific conservation actions, the population size of an endangered species will remain at its present level, whereas the voting individual is convinced that a climate change is leading to irreversible effects on the endangered species and no conservation actions can withhold the impact of the climate change. Provision consequentiality may also be viewed as low when a respondent expects intense protests from some groups of the population as a result of the authorities’ decision to undertake the project, which may hinder the project realisation. A respondent may hold weak beliefs in payment consequentiality if he observed in relation to another project in the past that the authorities experienced difficulty in enforcing payment from population members. On the basis of empirical data, Oehlmann and Meyerhoff (2017) show that lack of trust in the authorities translates into doubts about the actual consequences (policy changes) of a survey outcome.
Finally, the distinction between the two consequentiality aspects discussed in this subsection and the perception measured by function
Let The subjective probabilities are functions of the value of the project to the individual because of potential endogeneity, as pointed out in the CV literature (see, for example, Forbes
We assume that a continuously differentiable and strictly increasing function
Individual Payment collected ( Payment not collected (1 –
Based on Tab. 1, when the decision is to undertake the project, the expected utility of individual
When the decision is not to undertake the project, the expected utility of individual
Incentive compatibility means that truthful preference revelation constitutes the optimal strategy for a respondent. In the presented framework, this implies that individual
In the defined setting, the following holds for an incentive compatible CV referendum:
Moving
where
Below, we examine whether a single-shot, binary choice, advisory CV referendum can provide incentives for a rational, expected utility-maximising individual to vote in line with his true preferences and, if so, under what conditions. In separate subsections, we inquire the impacts of the two terms of the far right-hand side of (6), namely,
As inferred from the definition of
In order for an individual to view an advisory CV referendum as consequential, the size of the voting population should be finite.
When Condition 1 is violated, that is, when the voting population is (seen as) infinitely large, the weight of individual
given some expected share of the population members supporting the project,
In order for an individual to view an advisory CV referendum as consequential, when the individual has expectations about how other members of the population vote,
Let Condition 1 be met, and let
Given the lack of perfect rationality of survey respondents, researchers may also need to take into account individuals’ perceptions of the shape of function
increases, ceteris paribus. For individuals who have concave
When Condition 1 and Condition 2 are met, the sign of the difference in the expected utilities between voting “yes” and “no”, as given by (6), is determined solely by the sign of the difference in the expected utilities between the project implementation and the project non-implementation,
We now focus on the relationship between
Using (3) and (4), we represent the difference
In an incentive compatible referendum, an individual is strictly better off voting for (against) the project when
Claim 1 reveals the incentive properties of an advisory CV referendum in several particular cases:
when an individual is entirely convinced about the study consequentiality, that is, when both when an individual does not believe at all in the study consequentiality, that is, when both when one of
(
For For All possible combinations of
Incentive properties of an advisory CV referendum when one of Source: Author–s own elaboration.Value of Value of Incentive properties of the referendum
As shown in Tab. 2, in each of these cases, the individual’s voting preference is independent of the value he assigns to the good. Consequently, the individual does not have incentives to reveal his true preferences. QED
In the analysis that follows, we exclude the specific cases discussed in Claim 1: from now on, we assume that 0 <
Lemma 1 demonstrates that
If
Because the proof is tedious, it is relegated to the Appendix.
The condition for the incentive compatibility of an advisory CV referendum resulting from Lemma 1 is sufficient, rather than necessary. As inferred from the proof of Lemma 1, the condition is more likely to be close to necessary for risk-neutral individuals than for risk-averse individuals. In particular, the condition approaches a necessary condition for risk-neutral individuals when their beliefs in successful provision of the good are weak (
Given Lemma 1, in order to determine the incentive compatibility of the advisory CV referendum, we identify conditions under which
Because we now consider 0 <
where
The value of the left-hand side of (10) is clearly tied to the individual’s preferences towards risk. In Claim 2, we show that for an advisory CV referendum to be incentive compatible, the probabilities of successful provision and payment must be in a particular relationship to each other, and that this relationship differs depending on individuals’ risk preferences. Specifically, risk-neutral individuals reveal their preferences truthfully when
When the condition from Lemma 1 is satisfied: (
For a risk-neutral individual, the left-hand side of (10) is equal to 1. Then, for (10) to hold, we need to have that For a risk-averse individual, the value of the left-hand side of (10) is positive but smaller than 1. Thus, for the incentive compatibility of an advisory CV referendum, the right-hand side of (10) must also be smaller than 1, that is,
The rearrangement of (11) yields
A question remains as to how much the probability of successful provision should exceed the probability of payment for a risk-averse individual to be incentivised to reveal his true preferences. As discussed in Claim 3, this depends on the individual’s degree of risk aversion.
Under the condition from Lemma 1, for a risk-averse individual, the stronger the risk aversion, the larger the positive difference
As mentioned in the proof of Claim 2, for a risk-averse (
where ε∈(0,1) captures the level of an individual’s risk aversion: the higher the value of ε, the stronger the individual’s risk aversion. An individual’s risk aversion is expressed by the curvature of his utility function: the more “curved” his concave utility function, the stronger his risk aversion. When the degree of risk aversion increases, the numerator on the left-hand side of (12) becomes smaller and the denominator becomes larger. As a consequence, the fraction on the left-hand-side of (12) decreases in the degree of risk aversion, which results in higher å for more risk-averse individuals.
which can be rearranged into
Calculating the first derivative of
with respect to
which indicates that
How will a risk-neutral individual, for whom
We first focus on a risk-neutral individual. When
We now consider a risk-averse individual. Similarly, for
The words of Schwarz (1997, 176) well summarise our paper:
“The bottom line is simple: respondents do not value the good as described, but the good as represented in their own mental construal of the scenario… Understanding these processes may raise as well as solve problems that are crucial to CV research.”
We address the issue of the distinction between what a CV survey says and what the survey respondents believe, and we show how crucial this is for the reliability of CV studies. Specifically, on the basis of a model built on recent empirical evidence, we demonstrate the importance of the subjectively perceived consequentiality of a CV survey for its incentive compatibility, in the sense that it incentivises truthful preference disclosure. Respondents’ unobservable perceptions play an essential role in determining their best voting strategy in advisory CV referenda: whether or not to answer in line with true preferences. Even if a CV study adheres to the best practices of stated preference research, respondents’ preferences inferred from such a study could be biased when it is not taken into account that respondents’ beliefs may diverge from the information conveyed to them in the survey scripts. For example, survey scripts can assure respondents about the real-life consequences that follow from the survey outcome but respondents may not believe them. In order to maintain the incentive compatibility of advisory CV referenda, respondents’ subjective perceptions must be well understood. These include: (
Our model is structured in such a way that represents that respondents separately evaluate the chance that their vote can influence the referendum outcome and, contingent upon the authorities’ decision to implement the project, the chances of the successful provision of a public good and payment collection. Although this division may appear somewhat technical, we think that it well mirrors various aspects of the consequentiality considerations that a voting individual may have when participating in an advisory CV referendum. These considerations could be well captured by the two following questions, which justify the distinction proposed in our theoretical framework: “Can my vote have any impact on the referendum outcome? If so, what are the odds that I will actually have the good provided and that I will need to pay for it?”.
Our model suggests practical recommendations for CV studies that may help to improve the quality of value assessments of public goods. First, a respondent’s belief in the use of the survey results by policymakers in taking a final decision, as well as a respondent’s perception of the importance of his vote for the referendum outcome, should be examined. If a respondent does not believe that votes in favour of the project increase the probability of the authorities’ decision to undertake it, any answer in the referendum is equally good. Similarly, if a respondent does not see any chance that his vote can impinge on the referendum outcome, he does not have incentives to truthfully reveal his preferences. These perceptions might be affected by the respondent’s view of how the share of “yes” votes translates into the probability of the authorities’ decision about the project implementation, by the size of the surveyed population, and by the respondent’s knowledge/expectations of the voting behaviour of other members of the population.
Second, our model highlights that a perceived probability of the successful provision of a public good and a perceived probability of payment collection should be assessed separately, rather than, as typically done in current studies, measuring a respondent’s general belief in consequentiality through a single question about the extent to which he believes that the survey results will have an effect on the finally undertaken action. Moreover, in order to precisely capture perceptions of the two probabilities, respondents might be asked to indicate their perceived probability levels on a Likert scale that is broader than the one used in the existing studies, which ranges from two (Broadbent 2012) to six levels (Vossler
Finally, our model points out that CV studies should take into account respondents’ risk preferences in assessing the incentive properties of surveys. A lack of control of the effect of respondents’ risk preferences on their voting behaviour may lead to biased value estimates.
Obviously, our model relies on some assumptions which could be considered to be relaxed. This indicates directions for possible extensions of the presented analysis. Here, we discuss a few possibilities, although we are aware that there are many others. First, our framework assumes that each respondent knows (approximately) the value of the considered good to him, and this value is exogenous. However, the stated value, particularly when the respondent is not certain about his preferences, may be affected by various factors, including the cost presented in the survey (see, for example, references in Burrows, Dixon, and Chan 2017). This could be acknowledged in the model by making the stated value a function of the cost. Second, in our analysis, if the authorities choose to undertake the project, they do, indeed, endeavour to realise it. An extension could discuss a case where, even if the authorities formally decide to implement the project, their actual efforts to accomplish it may be questionable; for instance, they may be seen as more likely to successfully provide the good when the share of “yes” votes is sufficiently large. Consequently, the probabilities of successful provision and payment collection could be perceived as dependent on the referendum outcome. Third, our study examines the impact of one behavioural aspect, namely, consequentiality perceptions, on the incentive compatibility of CV research. However, evidence from the empirical literature demonstrates numerous behavioural anomalies that can disturb truthful preference elicitation: respondents may display a warm glow (they support a public policy project because the expression of support provides satisfaction by itself, regardless of actual preferences; Nunes and Schokkaert 2003), or they experience social desirability pressure (Leggett