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Using discrete choice experiments to regulate the provision of water services: Do status quo choices reflect preferences?

Bruno Lanz and Allan Provins ()

No 35-2015, CIES Research Paper series from Centre for International Environmental Studies, The Graduate Institute

Abstract: Discrete choice experiments (DCE) are increasingly used to quantify the demand for improvements to services provided by regulated utility companies and inform price controls. This form of preference elicitation, however, often reveals a high frequency of status quo (SQ) choices. This may signal an unwillingness of respondents to evaluate the proposed trade-offs in service levels, questioning the welfare theoretic interpretation of observed choices and the validity of the approach for regulatory purposes. Using the methodology for DCE in the regulation of water and sewerage services in England and Wales, our paper contributes to the understanding of SQ choices in several novel dimensions. First, we control for the perception of the SQ and the importance of attributes in day-to-day activities. Second, we use a split sample design to vary both the description of the SQ and the survey administration mode (online vs. in-person). Third, the service attributes can both improve or deteriorate, so that the SQ is not necessarily the least-cost option. Fourth, we examine SQ choices in individual choice tasks and across all tasks so as to identify the determinants of serial SQ choices. Our results suggest that individual SQ choices mostly reflect preferences and thus represent important information for the regulator. However, serial SQ choices are mainly driven by cognitive and/or contextual factors, and these responses should be analysed as part of standard validity tests.

Keywords: Cost-benefit analysis; Regulated utilities; Economic valuation; Discrete choice experiments; Individual decision making; Status quo effect. (search for similar items in EconPapers)
JEL-codes: C25 L43 L95 Q25 Q51 Q58 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2015-02-26
New Economics Papers: this item is included in nep-agr, nep-dcm, nep-mfd and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Using discrete choice experiments to regulate the provision of water services: do status quo choices reflect preferences? (2015) Downloads
Working Paper: Do status quo choices reflect preferences? Evidence from a discrete choice experiment in the context of water utilities' investment planning (2012) Downloads
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