Real Economic Incentives Research Articles

Can a Repeated Opt-Out Reminder mitigate hypothetical bias in discrete choice experiments? An application to consumer valuation of novel food products

Can a Repeated Opt-Out Reminder mitigate hypothetical bias in discrete choice experiments? An application to consumer valuation of novel food products

Fat tax, subsidy or both? The role of information and children's pester power in food choice

Using a discrete choice experiment with real economic incentives, this paper studies how food fiscal policies and external influences (such as pestering and information) can affect parental choice of food for their child. Using pairs of a parent and child, the experimental design varies the food prices of healthier and unhealthier alternatives of food products for children as part of specific food fiscal policies. We then examine the interplay of children's pester power as well as information about the fiscal policies. The results from our lab experiment suggest that (a) implementing a fat tax and a subsidy simultaneously can shift parental behavior to healthier food products to a greater degree than a fat tax or a subsidy alone, (b) providing information regarding the food fiscal policies can further increase the impact of the intervention, and (c) child pestering is one of the causes of the moderate effectiveness of the policies as it strongly affects parents in making unhealthier choices.

Behavioral implications of providing real incentives in stated choice experiments

This paper explores the potential impacts of introducing real economic incentives in choice experiments (CE). While many others have investigated such impacts before, the majority of the literature has focused solely on mitigation of hypothetical bias. We contribute to this literature by widening the scope of research to other behavioral aspects where consumers in CE are often found to deviate from homo economicus. We develop a theoretical model where not only Willingness to pay (WTP) measures but also decision processing can be affected by the introduction of an economic incentive. Specifically, our model allows for differential impacts on attribute processing, depending on the character of the attribute as well as self-image effects. In an empirical CE survey, we find some, though not unequivocal, support of our model. Even though we find no impact on WTP from introducing an economic incentive, we find marked benefits in relation to a number of behavioral aspects that together would favor the use of an economic incentive regardless of hypothetical bias being present or not.

A within-sample investigation of test-retest reliability in choice experiment surveys with real economic incentives

In this paper, we investigate the level of agreement between respondents' choices in identical choice sets in a test–retest choice experiment for a market good with real economic incentives, thus investigating whether the incentivised CE method can be reliable and stable over time. Besides comparing choices, we also test for differences in preferences and error variance when a sample of respondents is given the exact same questionnaire twice, with a time lag of 2 weeks in between. Finally, we examine potential reasons and covariates explaining the level of agreement in choices across the 2 weeks. Across four different tests, we find very good agreement between the two choice experiments – both with respect to overall choices and with respect to preferences. Furthermore, error variances do not differ significantly between the two surveys. The results also show that the larger the utility difference in a choice task, the larger the probability that the respondent will choose the same alternative in the retest. Moreover, the results show that the longer time respondents take to answer the 12 choice sets in the retest, the lower the probability that the respondent will choose the same alternatives in the retest as they did in the test.

Willingness to pay for environmental attributes of non-food agricultural products: a real choice experiment

This paper investigates consumers'willingness to pay a price premium for two environmental attributes of a non-food agricultural product. We study individual preferences for roses associated with an eco-label and a carbon footprint, using an economic experiment combining discrete choice questions and real economic incentives involving real purchases of roses against cash. The data are analysed with a mixed logit model and reveal significant premiums for both environmental attributes of the product.

Eliciting consumers' willingness to pay for organic and welfare-labelled salmon in a non-hypothetical choice experiment

In this study, we use a non-hypothetical choice experiment to elicit Norwegian consumers' willingness to pay a price premium for organic and animal welfare-labelled salmon. A total of 115 Norwegian consumers were recruited for a choice experiment in which they had to choose between farmed salmon produced under three different production regimes. The salmon used in the experiment were conventional, organic, and Freedom Food salmon, certified by an animal welfare organization. In order to reveal consumers' true preferences for the products, a nonhypothetical choice experiment was carried out. The experiment consisted of 30 choice scenarios, where each scenario mimics a shopping situation with two alternative packages of salmon. The packages varied with respect to production method, colour, and price. Real economic incentives were imposed by letting each consumer randomly draw one out of 30 choice scenarios to be binding, and then executing the sale of the package that he or she had chosen under that scenario. Our results show that the average consumer preferred organic and Freedom Food salmon to the otherwise identical salmon from conventional salmon farms. Further, he or she was willing to pay a price premium of approximately 2 euros per kg (15%) for organic and Freedom Food salmon, compared with conventional salmon of the same colour. Owing to feed restrictions, the organic salmon were much paler then the conventional and Freedom Food salmon, which resulted in a mean willingness to pay (WTP) for the pale organic salmon significantly below the mean WTP for conventional and Freedom Food salmon. Hence, it is very important for the success of organic salmon that the organic feed producers will be able to produce an organic feed with good pigmentation ability at an acceptable price. The results in this paper indicate that consumers are willing to pay to improve animal welfare and reduce undesirable environmental effects from fish farming. Consequently, eco-labelling of farmed seafood such as animal welfare-labelled salmon and organic certified salmon might become an important differentiation strategy in the future. However, it is also shown that the producers of alternatively labelled seafood products must consider the aesthetic properties of their products and that labelled products of inferior appearance are unlikely to achieve the necessary price premium. Finally, it is shown how real choice experiments can be used to elicit consumers' WTP for multiple product attributes including the colour of the fish, improved fish welfare, and environmental improvements.

Organic or Local? Investigating Consumer Preference for Fresh Produce Using a Choice Experiment with Real Economic Incentives

Determining consumers' preferences and willingness to pay (WTP) for organically grown and locally grown fresh produce is very important for stakeholders because it helps them figure out what type of fresh produce to grow and sell, what to emphasize in marketing efforts, and what are reasonable prices to charge. However, the literature that studies and compares consumers' preference and WTP for both organically and locally grown fresh produce is sparse. The objective of this study was to investigate consumers' WTP for organically grown and locally grown fresh produce and the marketing segmentation of these two types of produce. We combined a hypothetical experiment and nonhypothetical choice mechanism to investigate consumers' WTP for the attributes organic, local, and organic plus local for fresh produce. We found that when real products were used in the hypothetical experiment, the hypothetical bias (the difference between what people say they will pay and what they would actually pay) was not high. We found that consumers' WTP for the organic attribute was about the same as their WTP for the local attribute. Consumers' sociodemographics affected their choice between organically grown and locally grown produce. Furthermore, we found that consumers patronized different retail venues to purchase fresh produce with different attributes. The findings of the research have great importance for fresh produce stakeholders to make correct production and marketing decisions; the findings also contribute to experimental method choice in consumers' WTP research.

Extrapolating experimental-auction results using a stated choice survey

Summary During the last decade, experimental auctions and stated choice (SC) surveys have been widely used to study food demand. These methods have complementary strengths and weaknesses. Experimental auctions are limited by the availability of products and the use of locally recruited participants, whereas SC surveys lack real economic incentives. We use an SC survey to extrapolate the results of an experimental auction to hypothetical products with non-existing attribute combinations and to a representative sample of Norwegian consumers. The method is illustrated using Norwegian consumers’ preferences for country-of-origin and hormone status for beef.

Hunger for Peace: Egypt's Economic Reasons to Seek Peace with Israel

In 1978, Egypt's Anwar Al-Sadat launched a historic peace initiative with Israel, ultimately culminating in a peace agreement that, nearly 30 years later, still stands. This paper traces Egypt's economic status under Anwar Al-Sadat and concludes that Sadat, rather than just being an innately peace-loving man, had real economic incentives in seeking peace with Israel. Egypt diverted resources from its infrastructure and its people in order to pay for a heavily armed border with Israel. Hostilities toward Israel also cost the country foreign direct investment and foreign aid from the West. Sadat's desire for peace was literally hunger because his citizens were starving.

Consumers' Willingness to Pay for the Color of Salmon: A Choice Experiment with Real Economic Incentives

In most retail markets, sellers post the price and consumers choose which products to buy. We designed an experimental market with posted prices to investigate consumers' willingness to pay for the color of salmon. Salmon fillets varying in color and price were displayed in twenty choice scenarios. In each scenario, the participants chose which of two salmon fillets they wanted to buy. To induce real economic incentives, each participant drew one binding scenario; the participants then had to buy the salmon fillet they had chosen in their binding scenario. The choice data were analyzed with a mixed logit model.

Accounting Methods and Management Decisions: The Case of Inventory Costing and Inventory Policy

Considerable attention in the accounting literature is devoted to dis- cussing possible motives for and effects of choices among alternative accounting methods. Although insights have been gained into investor (stock market) reactions to changes in accounting methods, little is known about either management motivations for observed accounting choices or the effects of these choices on subsequent operating decisions. One explanation for the dearth of empirical findings is that few of the proposed theories of accounting choice have offered strong links to real economic incentives. In addition, previous studies have concentrated on firm characteristics existing before and concurrent with the accounting choice. Since managers making accounting choices are likely to consider future conditions as well, this approach may overlook important deter- minants of accounting choices. This approach also precludes the detection of possible changes in operating policies induced by accounting choices. A choice among alternative inventory costing methods, especially between the last in, first out (LIFO) and first in, first out (FIFO) cost- flow assumptions, can generate potentially large changes in a firm's cash flows due to its impact on taxable earnings. These cash-flow effects provide economic incentives for choices between these methods. More- over, these cash-flow effects depend, in part, on the behavior of year-end physical inventories. Because year-end inventory levels are subject to management control, the LIFO-FIFO choice can both affect and be affected by subsequent inventory management policies. The LIFO-FIFO choice offers, therefore, the opportunity both to identify factors which influence accounting choices and to examine associations between these choices and subsequent operating decisions. This study investigates whether associations consistent with LIFO- FIFO tax incentives exist between management choices to adopt or not adopt the LIFO inventory costing method and characteristics of firms' year-end inventories. Both pre- and postchoice characteristics are ex- amined. Because the LIFO-FIFO choice is voluntary, a postchoice association would be consistent with managers both anticipating future inventory characteristics when making a LIFO-FIFO choice and chang- ing inventory management policies in response to that choice. Evidence consistent with the hypothesis that LIFO adoptions are associated with changes in inventory management policies would have important macroeconomic implications. Zarnowitz and Moore [1977] have argued that a failure to recognize the major shift in inventory costing methods which occurred in 1973 and 1974 (primarily FIFO to LIFO) resulted in an underestimation of inventory accumulations by the U.S. Department of Commerce. This underestimation resulted from the different proce- dures used under LIFO and FIFO to assign costs to inventory units. While this effect of LIFO-FIFO choices can bias macroeconomic mea- surements and forecasts, an associated change in inventory management policies by a large number of firms could directly affect underlying macroeconomic stocks and flows. The research design involves comparisons between a treatment group sample of firms which adopted LIFO and a matched pair control sample of firms which continued to use FIFO (or an average cost method). Two primary measures of inventory properties are derived from available financial statement disclosures. One measure approximates physical in- ventory levels, while the other estimates what the difference would have been each year between each firm's cost-of-goods-sold computed under the LIFO and FIFO alternatives. The empirical results based on these measures indicate statistically significant associations between LIFO adoption decisions and inventory properties and reveal striking cash-flow consequences associated with LIFO-FIFO choices.