Embedding a Field Experiment in Contingent Valuation to Measure Context-Dependent Risk Preferences: Does Prospect Theory Explain Individual Responses for Wildfire Risk?

This paper contributes towards the development of an empirical approach applicable to contingent valuation to accommodate non-expected utility risk preferences. Combining elicitation approaches used in field experiments with contingent valuation, we embed an experimental design that systematically varies probabilities and losses across a survey sample in a willingness to pay elicitation format. We apply the proposed elicitation and estimation approaches to estimate the risk preferences of a representative homeowner who faces probabilistic wildfire risks and an investment option that reduces losses due to wildfire. Based on prospect theory, we estimate parameters of probability weighting, risk preferences and use individual characteristics as covariates for these parameters and as utility shifters. We find that risk preferences are consistent with prospect theory. We find that probability weighting may offer an explanation for respondents’ observed under investment in measures to reduce losses due to wildfire.Prospect theory; Contingent valuation; Field experiment, Wildfire risk

Invasive Weeds, Wildfire, and Rancher Decision Making in the Great Basin

A numerical dynamic model is developed to characterize the decision problem of a rancher operating on rangelands in northern Nevada that are affected by invasive annual grasses and wildfire. The model incorporates decisions about herd size management of a cow-calf operation and fuels treatment to reduce the size of rangeland wildfires. Currently, high transactions costs to obtain permits to implement land treatments on federally-owned rangeland appear to limit rancher involvement. The results of the model suggest that, even if the transactions are removed, ranch income motives alone are likely insufficient for private ranchers to adopt preventative land treatments. The current treatment cost ($20 per acre at the minimum) appears to be prohibitively expensive relative to the benefits derived from the treatments under the low-productivity, semi-arid rangeland conditions.Rangeland management; Stochastic dynamic programming; Ranching; Wildfire; Invasive grasses; Rangeland ecosystem benefits; Cow-calf operation

OPTIMAL ECONOMIC MANAGEMENT OF GROUNDWATER QUANTITY AND QUALITY: AN INTEGRATED APPROACH

A dynamic model is developed that jointly optimizes over groundwater quality and quantity for extractive municipal and non-extractive agricultural users. The model is applied to an aquifer in southern Ontario to analyze several policy scenarios, demonstrating that interactions between externalities can partially offset one another.Environmental Economics and Policy, Resource /Energy Economics and Policy,

Latent Thresholds Analysis of Choice Data with Multiple Bids and Response Options

In many stated preference settings stakeholders will be uncertain as to their exact willingness-to-pay for a proposed environmental amenity. To accommodate this possibility analysts have designed elicitation formats with multiple bids and response options that allow for the expression of uncertainty. We argue that the information content flowing from such elicitation has not yet been fully and efficiently exploited in existing contributions. We introduce a Latent Thresholds Estimator that focuses on the simultaneous identification of the full set of thresholds that delineate an individual's value space in accordance with observed response categories. Our framework provides a more complete picture of the underlying value distribution, the marginal effects of regressors, and the impact of bid designs on estimation efficiency. We show that the common practice of re-coding responses to derive point estimate of willingness-to-pay leaves useful information untapped and can produce misleading results if thresholds are highly correlated.Stated Preference; Multiple Bounded Elicitation; Polychotomous Choice; Bayesian Estimation; Value Uncertainty

Net Costs of Wildlife Damage on Private Lands

This study models net welfare impacts on producers who receive utility from on-farm wildlife populations that are not costlessly disposable. Wildlife damage levels where net benefits are zero indicate producers' maximum willingness to pay for on-farm wildlife. An empirical model is developed. Results for Ontario producers suggest the net welfare loss from damage is approximately half of the value of the yield loss for those with damage. In aggregate, however, on-farm wildlife generates net benefits to producers that outweigh costs by about 10-to-1. The distribution of net benefits is highly skewed across producers.random effects probit, tolerance thresholds, wildlife benefits, wildlife damage, Resource /Energy Economics and Policy,

Using Bid Design to Measure the Boundaries of WTP

We examine the extent to which bid design provides an informative anchor that influences the context in which individuals evaluate willingness to pay questions. We postulate that agents who are uncertain over possible states of nature that may arise when consuming a good use bid design as a means to resolve such uncertainty. Furthermore, we hypothesize that the impact of bid design on estimated WTP is less pronounced for experienced agents that have observed more draws from nature. We use three measure of bid design to evaluate our conjectures; (i) the mean of bid amounts, (ii) the absolute value of the difference between bid amounts, and (iii) the ratio of the mean to the spread. We interact proxies for individual experience with our measure of bid design to evaluate if such characteristics attenuate the impact of bid design on WTP estimates. We find the likelihood an individual says Yes to a given bid systematically varies with measures of bid design. This suggests that bid design provides an informative anchor and can be used to identify probabilistic boundaries for WTP.Demand and Price Analysis,

OPTIMAL COMPENSATION FOR ENDANGERED SPECIES PROTECTION UNDER ASYMMETRIC INFORMATION

This paper argues that policies based on economic instruments are preferable to command and control approaches for effectively protecting biological diversity. This is due to sources of inefficiencies because of informational asymmetries between the regulator and private land users. We propose a principal agent framework to design optimally structured and performance based economic incentives for private land owners.Environmental Economics and Policy, Resource /Energy Economics and Policy,

Willingness to Pay Estimation When Protest Beliefs are not Separable from the Public Good Definition

Public good attributes that are correlated with protest beliefs but not separable from the good's value, would affect stated preference estimates of the WTP for the public good. Survey data collected to value a program to prevent ecosystem losses on Nevada rangelands, where the majority of land is publicly owned and managed, reveal more than half of the respondents exhibiting some protest belief. Of these, about 60% voted 'yes' to some nonzero bid amount. By treating protest beliefs and opposition to the proposed program as separate concepts, we systematically analyze their determinants and impacts on WTP. In this framework, people with protest beliefs may or may not vote 'no' to all bids and people may, without being protesters, answer 'no' to all dollar amounts. Multinomial logit regression results suggest that factors motivating people to protest and/or oppose the proposed program are so diverse that a single model does not provide a good fit. We estimate nested models and conclude that different underlying processes determine WTP for "protesters" ($34.02) and "non-protesters" ($69.56).Stated preferences; Willingness to pay; Protest responses; Rangelands; Valuation of ecosystem services

Invasive Weeds, Wildfire, and Rancher Decision Making in the Great Basin

In this article, a numerical stochastic dynamic programming model (SDP) is developed to characterize the decision problem of a rancher operating on rangelands in northern Nevada that are affected by invasive annual grasses and wildfire. The model incorporates decisions about herd size management of a cow-calf operation and fuels treatment to reduce the size of rangeland wildfires. Currently, high transactions costs to obtain permits to implement land treatments on federally-owned rangelands appear to limit rancher involvement. The results of the model suggest that ranch income motives alone are likely insufficient for private ranchers to adopt preventative land treatments. The current treatment cost ($20 per acre at the minimum) appears to be prohibitively expensive relative to the benefits derived from the treatments under the low-productivity, semi-arid rangeland conditions.stochastic dynamic programming, cow-calf operation, rangeland, ecosystem, Livestock Production/Industries, Resource /Energy Economics and Policy,

The Frying Pan or the Fire: Public Attitudes About Using Herbicides to Manage Invasive Weeds

How do we balance risks? This paper assesses hypotheses derived from instrumental rationality and risk society theories about the reasoning strategies that people will use to develop views supportive or oppositional to the use of herbicides to manage cheatgrass (Bromus tectorum), an invasive weed. Cheatgrass is well-known in the population of the American West to increase wildfire risks substantially and to harm the environment in other ways. But are the cures worse than the disease? One demonstrably effective method of cheatgrass suppression is the use of herbicides, and the paper explores sources of support for and opposition to the use of herbicides for this purpose. The data are from a representative sample of residents of Nevada, one of the states greatly at risk from cheatgrass (N = 532). Attitude and cultural practice clusterings are assessed using factor analysis. Direct and indirect effects of demographic and back-ground variables and cultural practices on support for/opposition to herbicide use are assessed via structural equation models. Results show that there is more support for the instrumental rationality hypothesis, but that the risk society hypothesis is also needed to account for all the findings