Are Choice Experiment Treatments of Outcome Uncertainty Sufficient? An Application to Climate Risk Reductions

Christos Makriyannis, Robert Johnston and Adam W. Whelchel

Agricultural and Resource Economics Review, 2018, vol. 47, issue 3, 419-451

Abstract: Choice experiments addressing outcome uncertainty (OU) typically reframe continuous probability densities for each risky outcome into two discrete categories, each with a single probability of occurrence. The implications of this simplification for welfare estimation are unknown. This article evaluates the convergent validity of willingness-to-pay (WTP) estimates from a more accurate multiple-outcome treatment of OU, compared to the two-outcome approach. Results for a case study of coastal flood adaptation in Connecticut, United States, suggest that higher-resolution OU treatments increase choice complexity but can provide additional information on risk preferences and WTP. This tradeoff highlights challenges facing the valuation of uncertain outcomes.

Date: 2018
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