Using local knowledge to model asymmetric preference formation in willingness to pay for environmental services

Abstract

This paper describes an approach to account for asymmetric preference formation in discrete choice models used for environmental valuation. The paper draws on data from a case study on preferences for environmental change resulting from a hypothetical rural development and conservation programme in Indonesia. Local knowledge on the current state of the environment was used to define an individual-specific status quo that consistently frames changes in a range of environmental services as gains or losses matching the perceptions of the local population living in the vicinity of a National Park. I estimated choice models that included separate parameters for increases and decreases in attribute levels for the environmental services and derived the indicators of local willingness to pay (WTP) corresponding to the bidirectional changes relative to the individual-specific status quo option.I found clear evidence of an asymmetric response to increase and decrease in attribute levels relative to the status quo. Ignoring asymmetric preference formation can therefore result in biased estimates of WTP indicators and welfare measures of change in cases where the outcomes of environmental programmes can plausibly result in both an increase and a decrease relative to a reference option. Compared to a symmetrical modelling approach, the combination of simultaneously accounting for asymmetric preference formation and preference heterogeneity in the choice model yielded additional insights that may be used to inform the development of local strategies towards biodiversity conservation.