The effects of subjective perception on preference heterogeneity

Abstract

ABSTRACT Heterogeneity in preferences among individuals and groups for environmental goods has been widely observed in non-market valuation studies. However, the underlying mechanisms that produce the heterogeneity are not yet sufficiently understood, and the explanation remains one of the major questions in the stated preference economic analysis. This paper examines whether variations in perceived quality explain the observed heterogeneity in willingness-to-pay. Individuals’ willingness-to-pay for an environmental quality change is modelled as a function of their subjective perceived quality, instead of objective quality, and individual characteristics. At the same time, their subjective perception is modelled as a function of their individual characteristics. An empirical test is conducted using a choice experiment data set that evaluates endangered species conservation. The results indicate that (i) respondent’s subjective perception depends on their motivation, knowledge and comprehension; (ii) the willingness-to-pay estimate depends on the subjective perception as well as attitude, motivation and gender. The finding supports that respondent’s willingness-to-pay is dependent on their perceived quality, indicating that the subjective perception is one of the potential sources of the estimated preference heterogeneity. This suggests that prior knowledge as well as posterior understanding could have an effect on respondent’s willingness-to-pay through their subjective perception endogenously.