Comparing best‐worst and referendum

Darla Hatton MacDonald, John M. Rose, Robert Johnston, Rosalind H. Bark and Jodie Pritchard

Australian Journal of Agricultural and Resource Economics, 2019, vol. 63, issue 4, 897-921

Abstract: In nonmarket valuation, practitioners must choose a format for the valuation questions. A common approach in discrete choice experiments is the ‘pick‐one’ format, often with two alternative policy proposals and a status quo from which the respondent selects. Other proposed formats, include best‐worst elicitation, where respondents are asked to indicate their most and least favoured alternative from a set. Although best‐worst formats can offer efficiency in data collection, they can also lead to responses that are difficult to reconcile with neoclassical welfare estimation. The current article explores methodological issues surrounding the use of pick‐one versus best‐worst data for nonmarket valuation, focusing on framing and status quo effects that may occur within three‐alternative discrete choice experiments. We illustrate these issues using a case study of surplus groundwater use from Western Australian mining. Results identify concerns that may render best‐worst data unsuitable for welfare estimation, including a prevalence of serial choices in which the status quo is universally chosen as the worst alternative, rendering part of the choice process deterministic. Asymmetry of preferences and serial choices can be obscured when models are estimated using ‘naively’ pooled best‐worst data. Results suggest that caution is warranted when using best‐worst data for valuation, even when pooled results appear satisfactory.

Date: 2019
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