Cost vector effects in discrete choice experiments with positive status quo cost

Abstract

An important component of the design phase of a discrete choice experiment (DCE) is formulating the cost vector, which specifies the costs of the alternatives and enables the calculation of marginal willingness to pay (WTP) estimates. If the cost vector affects choice behaviour, welfare estimates may depend on the choice of the cost vector, which leads to problems with the validity and reliability of DCE results. We employ a split-sample design to examine cost vector effects on choice behaviour and WTP estimates. Our data come from a DCE on agri-environmental policies to a nationally representative sample in Finland. We provide additional insights compared to previous research by including four cost vectors with otherwise identical surveys and experimental designs and a positive cost for the status quo alternative, with cost levels for policy alternatives both below and above the status quo cost. We obtain some evidence that the cost vector affects choice behaviour, as the proportion of status quo choices is larger with higher cost vectors. Both absolute and relative cost levels matter for choices. The marginal WTP estimates are highest in the sub-sample with the largest range cost vector that has cost levels both below and above the status quo cost. We suggest more careful pre-testing of the cost levels compared to current practices to determine a plausible range of cost levels to produce valid welfare estimates.