Preference-Directed Regulation When Ethical Environmental Policy Choices Are Formed With Limited Information

Abstract

Preference-directed regulation (PDR) can supplement traditional environmental policies through frequent regulatory revision(Livermore, 2007). Stakeholders can use PDR to garner popular support for a specific policy. By providing individuals with information that augments their opinions about the effectiveness of a policy at driving environmental outcomes, stakeholders can induce preference switching in favor of or in detriment to a specific policy. This paper documents the extent to which this is true using cross-sectional data from an original national survey where individuals were asked to choose one of three policies aimed at reducing the number of products manufactured in environmentally damaging ways. Proxies for policy-specific opinions about the effectiveness of each policy are extracted from the data and form the central focus of inducing preference switching. PDR is operationalized by exogenously augmenting individual opinions via counterfactual simulations within a limited information discrete choice model. The results demonstrate that the extent of preference switching depends not only on the relative change in opinion for a specific policy, but that different forms of PDR may be more effective at inducing preference switching. The substitution patterns arising from the counterfactual simulations are further explained by analytically demonstrating the mitigation of the Independence of Irrelevant Alternatives property endemic to traditional multinomial choice models (i.e., full information). Additional empirical results are documented by comparing the results to a full information model, including downward bias in mean utility levels and individual-level preference switching across the limited and full information conditional choice utilities.Discrete Choice, Limited Information, Preference Switching, Survey Data, Environmental Policy, Preference-Directed Regulation