Endogeneity of Risk Perceptions in Averting Behavior Models

Patrick Lloyd-Smith, Craig Schram, Wiktor Adamowicz and Diane Dupont
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Craig Schram: University of Alberta

Environmental & Resource Economics, 2018, vol. 69, issue 2, No 1, 217-246

Abstract: Abstract This paper examines the relationship between averting expenditures / choices and perceived health risks. Models in the literature often employ risk perceptions as explanatory variables without addressing the potential endogeneity of the perceived risk. We examine the implications of ignoring endogeneity in this context, using an application to both drinking water choices and expenditures and perceived health risks. Our data are from an Internet-based cross-Canada survey that employs a novel interactive risk ladder to elicit mortality risk perceptions relating to water. We employ two fundamentally different methods to assess the impact of risk perceptions on behavior: an analysis of expenditures on alternate water sources and a model of proportional choice of water sources. Results suggest the presence of averting behavior with respect to perceived mortality risks and that the estimated effect of water risks is greater than 3 times higher when using approaches that correct for endogeneity compared to models that do not.

Keywords: Averting behavior; Risk perceptions; Water quality; Human health; Latent class models; Expenditure model; Endogeneity (search for similar items in EconPapers)
JEL-codes: I12 Q51 Q53 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (15)

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DOI: 10.1007/s10640-016-0075-6

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