Valuing Climate Change Mitigation

Valuing Climate Change Mitigation

Applying Stated Preferences in the Presence of Uncertainty

Sonia Akter and Jeff Bennett

Valuing Climate Change Mitigation discusses the role of uncertainty in valuing the benefits of climate change mitigation policies using contingent valuation and choice experiment techniques. It treats climate change using three dimensions of uncertainty: scenario, policy and preference. Conceptual frameworks are advanced to account simultaneously for these various dimensions of uncertainty. The authors then explore the impact of introducing these uncertainties into benefit estimates for the Australian Carbon Pollution Reduction Scheme.

Chapter 9: Determinants of Preference Uncertainty

Sonia Akter and Jeff Bennett

Subjects: economics and finance, environmental economics, valuation, environment, climate change, environmental economics, valuation


9.1 INTRODUCTION This chapter identifies the determinants of preference uncertainty for climate change mitigation. The chapter first presents an analytical model that is based on the cognitive psychology theories presented in Chapter 2. The model is estimated using the data obtained from the CV and twooption CE samples. Respondents were shown a ten-point numerical certainty scale in both CV and CE surveys. The self-reported certainty scores are modelled using the ordered probit regression technique. The rest of the chapter is organized as follows. Section 9.2 develops the model. Section 9.3 presents results from the CV survey data followed by the two-option CE survey results in Section 9.4. Section 9.5 discusses the results and concludes the chapter. 9.2 THE ANALYTICAL MODEL OF PREFERENCE UNCERTAINTY In light of the cognitive psychology theory presented in Chapter 2, an analytical model of preference uncertainty is constructed in this section. The model is summarized in Figure 9.1. Empirical studies suggest that respondents use bid level, attitudes and prior experience as elements of heuristic information processing (Loomis and Ekstrand, 1998; Champ and Bishop, 2001; Samnaliev et al., 2006; Akter et al., 2009). Bid level serves as an information source within the decision-making framework of a CV study. Figure 9.2 presents a hypothetical distribution function of W for individual i. Let us assume that WTP (W) follows a uniform distribution such that W | U (W* 2 d, W* 1 d) where d refers to the unknown component of preference (d > 0) and W* is the expected value...

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