The effect of providing misleading cost information on the perceived value of government services

Abstract

Previous research has shown that people are poorly informed about the actual costs of providing government services. Three studies investigated the effect of manipulating cost information on valuation of such services. In Experiment 1 respondents were asked to value and to nominate their own preferred spending allocation for 15 services accompanied by inflated, accurate, or underestimated per capita annual costs of providing the service. The cost information had no significant effect on the values assigned to the services, but a large effect on the preferred spending allocation. Experiment 2 gave respondents misleading information about the marginal costs of expanding different services and found little effect of the misinformation on respondents’ estimates of the value of extra spending on the services. Experiment 3 provided misleading information on the costs of specific proposals for expanding government services obtained from the media and again found no effect on the perceived value of the proposals. Together the studies indicate that preferences for the allocation of spending among government services are heavily influenced by people’s perception of their costs but the perceived value of the services takes little account of cost.