Water Quality Trading in the Presence of Discrete Abatement Costs: An Experimental Analysis of Contract Length and the Timing of Investment

Food Security and Poverty, Research and Development/Tech Change/Emerging Technologies,

Beyond Optimal Linear Tax Mechanisms: An Experimental Examination of Damage-Based Ambient Taxes for Nonpoint Polluters

The regulation of nonpoint source water pollution from agriculture is a complex problem characterized by a multiplicity of polluters, informational asymmetries, complex fate and transport processes, and stochastic environmental factors. Taken together, these characteristics make regulatory policy based on individual firm emissions prohibitively costly. To circumvent this issue, economists, beginning with the seminal work of Segerson (1988), have devised economic incentive instruments that assign liabilities based on deviations between the observed ambient water quality level and a specified pollution threshold (Xepapadeas 1991; Horan, Shortle and Abler 1998, 2002; Hansen 1998, 2002). In the special case of a linear damage function, the regulator can optimally set the parameters of Segerson's (1988) incentive scheme solely with information on the damage function. When the damage function is nonlinear, a depiction that likely represents many watersheds, Segerson's incentive scheme is firm-specific, and the regulator must acquire costly firm-specific data on factors such as input use, land management practice, and soil type. Using a linear damage function setting, recent laboratory experimental economics efforts have investigated the ambient-based mechanisms proposed by Segerson, as well as some simple variants (Spraggon 2002, 2004; Poe et al. 2004; Vossler et al. 2005). A fundamental limitaion of this body of research, however, is that has utilized an "optimal design" in which the threshold pollution level for triggering the abient-based policy is set equal to the social optimum. It is therefore unclear whether subjects are optimally responding to the tax and threshold combination, or simply trying to reacting to the focal point created by the threshold. A second limitation of past experimetnal economics research is that, following Segerson, these investigations have utilized the limited case of a linear tax function. While a tax policy is relatively straightforward to apply when damages are linear, the application to real world situations may be limited. A more believable circumstance is that economic damages increase at an increasing rate as ambient pollution levels rise. This paper advances the experimental literature on ambient based pollution mechanisms in two important ways. First, by employing a range of marginal tax rates and threshold levels, we show that subjects do in fact respond optimally to the tax and cutoff combination. Second, by using the damage based tax proposed Hansen (1998) and Horan et al. (1998), we show that aggregate results when the economic damages from ambient water pollution are nonlinear are not significantly different from corresponding results under the linear tax.Environmental Economics and Policy,

Bridging the Gap between the Field and the Lab: Environmental Goods, Policy Maker Input, and Consequentiality

This paper explores the criterion validity of stated preference methods through experimental referenda that capture key characteristics of a stated preference survey for a proposed environmental program. In particular, we investigate whether advisory referenda, where participant votes have either known or unknown weight in the policy decision, can elicit values comparable to that of a standard, incentive-compatible referendum. When participants regard their votes as consequential, our results suggest there is no elicitation bias with advisory referenda. For advisory referenda where participants view their votes as inconsequential, and for purely hypothetical referenda, we observe elicitation bias

Multiple bounded discrete choice contingent valuation: parametric and nonparametric welfare estimation and a comparison to the payment card

In multiple bounded discrete choice (MBDC) surveys, respondents indicate how certain they would be to vote in favor of a policy at different prices by choosing, for example, among “definitely yes”, “probably yes”, “not sure”, “probably no”, and “definitely no” response options for each price. In estimating non-market values from MBDC data, past researchers have made markedly different assumptions with respect to the assumed correlation of within-respondent decisions (one for each price) and the correspondence of stated payment certainty to actual behavioral intentions. The first objective of this paper is to provide guidance for future research efforts by discriminating between existing models and proposing new estimators that relax some important statistical assumptions of existing models. Contrary to a previous study, results in this paper suggest that within-respondent decisions should be treated as being perfectly correlated. The second objective is to examine whether it is worthwhile to collect the additional information on payment certainty, as it may place additional cognitive burden on respondents as well as data analysts. Using data from previous studies, MBDC is compared with the payment card, a related elicitation approach that does not gauge payment certainty. This comparison provides strong and systematic evidence that “definitely yes” and “probably yes” MBDC respondents would vote “yes” while other respondents would vote “no” in the absence of the certainty categories

Multiple bounded discrete choice contingent valuation: parametric and nonparametric welfare estimation and a comparison to the payment card

In multiple bounded discrete choice (MBDC) surveys, respondents indicate how certain they would be to vote in favor of a policy at different prices by choosing, for example, among “definitely yes”, “probably yes”, “not sure”, “probably no”, and “definitely no” response options for each price. In estimating non-market values from MBDC data, past researchers have made markedly different assumptions with respect to the assumed correlation of within-respondent decisions (one for each price) and the correspondence of stated payment certainty to actual behavioral intentions. The first objective of this paper is to provide guidance for future research efforts by discriminating between existing models and proposing new estimators that relax some important statistical assumptions of existing models. Contrary to a previous study, results in this paper suggest that within-respondent decisions should be treated as being perfectly correlated. The second objective is to examine whether it is worthwhile to collect the additional information on payment certainty, as it may place additional cognitive burden on respondents as well as data analysts. Using data from previous studies, MBDC is compared with the payment card, a related elicitation approach that does not gauge payment certainty. This comparison provides strong and systematic evidence that “definitely yes” and “probably yes” MBDC respondents would vote “yes” while other respondents would vote “no” in the absence of the certainty categories

Analyzing repeated-game economics experiments: robust standard errors for panel data with serial correlation

The purpose of this study is to provide guidance to those who analyze data from repeated-game experiments. In particular, I propose the use of heteroskedasticity-autocorrelation consistent (HAC) covariance estimators for panel data, which allows researchers to conduct hypothesis tests without having to place structure on the heteroskedasticity and/or serial correlation likely present in econometric models. Through Monte Carlo experiments I explore the properties of three panel HAC covariance estimators within a linear regression framework, including a new HAC covariance estimator proposed in this study, for a range of cross-section

A nonexperimental test of the contingent valuation method : comparing hypothetical and actual voting behavior

This study compares the results of a contingent valuation (CV) mail survey and the voting outcome of a bond measure to fund improvements, through property tax increases, to a downtown park and adjacent riverbank in Corvallis, Oregon. In addition to asking survey respondents about their voting decision, respondents are presented with a dichotomous choice CV (DC-CV) question regarding the same project. The DC-CV question mimics a typical CV question, as it involves a random pricing structure and a hypothetical policy. However, the subject of the DC-CV question is the same as a known referendum. Responses to both valuation questions are nonbinding. In this study, survey referendum responses closely match the actual voting outcome and willingness to pay (WTP) estimates based on survey referendum responses and precinct-level voting results are not statistically different. WTP based on DC-CV responses match WTP based on actual voting behavior only when the survey sample is restricted to respondents that face a random bid price that is close to the proposed tax increase. Otherwise, the WTP based on DC-CV responses is lower than WTP based on voting behavior. A comparison of responses between the two valuation questions suggests that respondents made rational choices with regards to relative prices in the hypothetical scenario. Tangential CV issues, such as the treatment of "undecided" responses and detection of yea-saying in dichotomous choice responses are also explored

Social Preferences and Voting: An Exploration Using a Novel Preference Revealing Mechanism

Public referenda are frequently used to determine the provision of public goods. As public programs have distributional consequences, a compelling question is what role if any social preferences have on voting behavior. This paper explores this issue using laboratory experiments wherein voting outcomes lead to a known distribution of net benefits across participants. Preferences are elicited using a novel Random Price Voting Mechanism (RPVM), which is a more parsimonious mechanism than dichotomous choice referenda, but gives consistent results. Results suggest that social preferences, in particular a social efficiency motive, lead to economically meaningful deviations from self-interested voting choices and increase the likelihood that welfare-enhancing programs are implemented.Institutional and Behavioral Economics, Research Methods/ Statistical Methods, C91, C92, D64, D72, H41,

Hybrid Allocation Mechanisms for Publicly Provided Goods

Motivated by efficiency and equity concerns, public resource managers have increasingly utilized hybrid allocation mechanisms that combine features of commonly used price (e.g., auction) and non-price (e.g., lottery) mechanisms. This study serves as an initial investigation of these hybrid mechanisms, exploring theoretically and experimentally how the opportunity to obtain a homogeneous good in a subsequent lottery affects Nash equilibrium bids in discriminative and uniform price auctions. The lottery imposes an opportunity cost to winning the auction, systematically reducing equilibrium auction bids. In contrast to the uniform price auction, equilibrium bids in the uniform price hybrid mechanism vary with bidder risk preferences. Experimental evidence suggests that the presence of the lottery and risk attitudes (elicited through a preceding experiment) impact auction bids in the directions predicted by theory. Finally, we find that theoretically and experimentally, the subsequent lottery does not compromise the efficiency of the auction component of the hybrid mechanisms

ANOMALIES IN VOTING: AN EXPERIMENTAL ANALYSIS USING A NEW, DEMAND REVEALING (RANDOM PRICE VOTING) MECHANISM

This study investigates the influence of social preferences on voting decisions using a new Random Price Voting Mechanism (RPVM), which is best thought of as a public goods voting extension of the Becker-DeGroot-Marshack mechanism for private goods. In particular, this mechanism is used to investigate experimentally whether voting decisions are affected by the distribution of net benefits associated with a proposed public program. Recent papers have shown that, in additional to selfishness, factors such as inequality aversion, maximin preferences, and efficiency may influence individual decisions. However, the effect of social preferences on voting, the predominant funding mechanism for public goods by legislatures and public referenda, has not been thoroughly examined. We first establish the presence of anomalous behavior in dichotomous voting, and introduce the RPVM as a more efficient mechanism to examine such anomalies. We show that it is demand revealing in the presence of social preferences and empirically consistent with dichotomous choice voting. Laboratory experiments involving 440 subjects show that when net benefits are homogeneously distributed, the new RPVM is demand-revealing in both willingness-to-pay (WTP) and willingness-to-accept (WTA) settings, for both gains and losses. When the voting outcome potentially results in a heterogeneous distribution of (net) benefits, a systematic wedge appears between individuals' controlled induced values and their revealed WTP or WTA. With induced gains, the best-off subjects under-report their WTP and WTA in comparison to their induced value. Worst-off subjects express WTP and WTA that exceed their induced value. With induced losses a mirror image is evident. Best-off subjects over-report their induced value while the worst-off subjects under-report. Theoretical and econometric results presented in the paper suggest that these differences are caused by a concern for social efficiency.Institutional and Behavioral Economics,