Cost–Benefit Analysis and Distributional Preferences

Cost–Benefit Analysis and Distributional Preferences

A Choice Modelling Approach

Helen Scarborough and Jeff Bennett

Advancing the incorporation of equity preferences in policy analysis, this book demonstrates the application of choice modelling to the estimation of distributional weights suitable for inclusion in a cost–benefit analytical framework. A platform for discussion of the challenges and opportunities of this approach is presented in the form of a detailed case study designed to estimate community preferences for different intergenerational distributions. While the case study is focused on natural resource management and environmental policy, the conceptual and methodological advances illustrated by the authors are relevant and applicable to a wider array of policy deliberations.

Chapter 3: Choice Modelling and Distributional Preferences

Helen Scarborough and Jeff Bennett

Subjects: economics and finance, environmental economics, public finance, public sector economics, valuation, environment, environmental economics, valuation


3.0 Introduction The welfare economics theory discussed in Chapter 2 suggests that, in theory, the notion of including distributional weights in CBA is theoretically sound. However, in practice, incorporating distributional weights is not a common approach among policy-makers. As discussed, this partly reflects the difficulties associated with the empirical estimation of distributional preferences. This chapter addresses this question by introducing the stated preference method of choice modelling as a way to estimate the distributional or equity preferences of the community. Choice modelling is a quantitative statistical method that has been steadily developing since the 1970s and has conventionally been applied to problems of non-market valuation. 3.1 CHOICE MODELLING Choice modelling is a form of conjoint analysis; meaning that alternatives are considered jointly or simultaneously. Conjoint methods include: choice modelling, contingent ranking, contingent rating and paired comparisons. Although choice modelling has only been used relatively recently in environmental valuation exercises (Adamowicz et al. 1994; Roe et al. 1996), it has been employed by psychologists since the 1960s and in transportation and marketing research since the early 1970s (Garrod and Willis 1999). From these beginnings, the method has evolved through advances in a variety of disciplines where the common goal has been the development of a method to explain individual and aggregate choice behaviour. Louviere et al. (2000), Haab and McConnell (2002), Bennett and Blamey (2001) and Hensher et al. (2005) provide valuable explanations and discussions of the methodology and application of choice modelling. Choice modelling is designed to study the choices...

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