Experimental Economics and the Environment: Eliciting Values for Controversial Goods

Jason F Shogren,Gregory M Parkhurst,Darren Hudson

doi:10.1017/s1068280500007206

Abstract

We illustrate the experimental method by examining bidding behavior for controversial goods, i.e., goods in which bidders have positive and negative values. Our results suggest that bidding behavior differs across auction type. Bidders with positive induced values bid sincerely in a WTP auction. Bidders bid conservatively, however, in the WTA auction, foregoing profitable opportunities. Informing bidders of their optimal strategy serves to attenuate bidding discrepancies but does not eliminate them. Treating the WTP and WTA auctions as equivalent given positive and negative values could lead one to overstate the costs relative to the benefits of the controversial good.

Highlights

Experimental auctions have become a popular method to elicit individuals’ private values for changes in private and public goods
We present the results in three phases: (i) benchmark willingness to pay (WTP) bidding, (ii) willingness to accept (WTA) bidding relative to auction theory, (iii) bidding across the WTA and WTP auctions, and (iv) bidding behavior when bidders know the optimal strategy relative to uninformed bidders in the WTA and WTP auctions
If bidding behavior differs between the informed and uninformed treatments but bidding differences persist between the informed WTA and informed WTP treatments, a hybrid explanation of cognitive burden and strategic bidding—each explaining a portion of the differences in aggregate bidding behavior—is appropriate

Summary

Introduction

Experimental auctions have become a popular method to elicit individuals’ private values for changes in private and public goods (see Lusk and Shogren 2007). Auctions typically elicit either willingness to pay (WTP) or willingness to accept (WTA) measures of value, depending on the property rights of the good. If people hold property rights, we use a WTA auction; otherwise, we use a WTA auction. The common approach for assigning property rights in experimental auctions is to endow people with an inferior good and ask them their WTP to trade up to a superior good, or to endow them with the superior good and ask their WTA to trade down.. For controversial goods like irradiation, genetic modification, wolf reintroduction, and water quality improvements, values will differ—some positive, others negative.. For controversial goods like irradiation, genetic modification, wolf reintroduction, and water quality improvements, values will differ—some positive, others negative.3 Both positive and negative values could arise in either auction, WTP or WTA. The open question is: Does bidding behavior in a Vickrey-style WTA auction parallel bidding behavior in a Vickrey-style WTP auction when bidders have both positive and negative induced values?

Results

Discussion

Conclusion