Abstract
Sensitivity to scope in nonmarket valuation refers to the property that people are willing to pay more for a higher quality or quantity of a nonmarket public good. Establishing significant scope sensitivity has been an important check of validity and a point of contention for decades in stated preference research, primarily in contingent valuation. Recently, researchers have begun to differentiate between statistical and economic significance. This paper contributes to this line of research by studying the significance of scope effects in discrete choice experiments (DCEs) using the scope elasticity of willingness to pay concept. We first formalize scope elasticity in a DCE context and relate it to economic significance. Next, we review a selection of DCE studies from the environmental valuation literature and derive their implied scope elasticity estimates. We find that scope sensitivity analysis as validity diagnostics is uncommon in the DCE literature and many studies assume unitary elastic scope sensitivity by employing a restrictive functional form in estimation. When more flexible specifications are employed, the tendency is towards inelastic scope sensitivity. Then, we apply the scope elasticity concept to primary DCE data on people’s preferences for expanding the production of renewable energy in Norway. We find that the estimated scope elasticities vary between 0.13 and 0.58, depending on the attribute analyzed, model specification, geographic subsample, and the unit of measurement for a key attribute. While there is no strict and universally applicable benchmark for determining whether scope effects are economically significant, we deem these estimates to be of an adequate and plausible order of magnitude. Implications of the results for future DCE research are provided.
Highlights
Sensitivity to scope in nonmarket valuation refers to the property that people are willing to pay more for a higher quality or quantity of a nonmarket public good (Carson et al 2001; Freeman et al 2014; Mariel et al 2021)
We identify the study context, which scope-relevant attributes were included in the discrete choice experiments (DCEs) design, the functional form utilized in estimation, whether the article includes a discussion of the scope sensitivity issue, and the implied scope elasticities from its estimation results
This paper is the first to carry out a systematic investigation of the significance of scope effects in DCE studies using the scope elasticity of willingness to pay (WTP) concept
Summary
Sensitivity to scope in nonmarket valuation refers to the property that people are willing to pay more for a higher quality or quantity of a nonmarket public good (Carson et al 2001; Freeman et al 2014; Mariel et al 2021). Plausibility, or economic significance, though Layton and Brown (2000) refer to their results as “economically sensible” and “economically reasonable”.4 It is important from both a methodological point of view and a policy perspective to further develop and include scope tests in DCE studies as well as in CV research. We provide baseline results for two quantitative attributes (renewable energy production and wind power expansions) and investigate whether elasticity estimates vary across model specifications, geographic subsamples with different levels of familiarity and exposure, and experimental variation in the unit of measurement of the quantitative wind power attribute This analysis is generally motivated by the lack of attention to DCE scope effects revealed by the literature review.
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