Gain and loss of money in a choice experiment. The impact of financial loss aversion and risk preferences on willingness to pay to avoid renewable energy extarnalities

Anna Bartczak, Susan Chilton, Mikolaj Czajkowski and Jürgen Meyerhoff
Additional contact information
Susan Chilton: Newcastle University Business School

No 2016-36, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: We examine how the direction of price changes affects the value people place on avoiding renewable energy externalities in Poland. Additionally, we investigate the influence of individuals’ financial loss aversion and financial risk preferences on this valuation. In our study we conduct a choice experiment survey in which respondents’ choices indicate the value they place on avoiding wind, solar, and biomass externalities. We combine this survey with a financial lottery choice task that elicits the respondents’ risk preferences and degree of loss aversion. In the choice experiment we use both increases and decreases in electricity bills to depict the uncertain effect of new sources of energy generation on the current price level. This design allows us to investigate if obtained values are independent of the payment mechanism. In the analyzed context, our results indicate that marginal utility of money seems to be lower with a rebate on the energy bill than with a surcharge. Moreover, financial risk preferences affect people’s choices in a case of a surcharge, while loss aversion for money affects them in the case of a rebate. We find that the more loss averse people are with regard to money, the more they require compensation before they accept externalities from renewable electricity production. In contrast, the more risk seeking people are in a financial domain, the less cost sensitive they are and the more willing they are to pay for proposed changes in renewable electricity generation.

Keywords: choice experiment; externalities of renewable energy; loss aversion; lottery experiment; marginal utility of money; risk preferences (search for similar items in EconPapers)
JEL-codes: D81 Q20 Q42 Q49 Q51 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2016
New Economics Papers: this item is included in nep-agr, nep-cbe, nep-dcm, nep-ene, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.wne.uw.edu.pl/index.php/download_file/3202/ First version, 2016 (application/pdf)

Related works:
Journal Article: Gain and loss of money in a choice experiment. The impact of financial loss aversion and risk preferences on willingness to pay to avoid renewable energy externalities (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2016-36

Access Statistics for this paper

More papers in Working Papers from Faculty of Economic Sciences, University of Warsaw Contact information at EDIRC.
Bibliographic data for series maintained by Marcin Bąba ().