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Are Choice Experiment Treatments of Outcome Uncertainty Sufficient? An Application to Climate Risk Reductions

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  • Makriyannis, Christos
  • Johnston, Robert J.
  • Whelchel, Adam W.

Abstract

Choice experiments addressing outcome uncertainty (OU) typically reframe continuous probability densities for each risky outcome into two discrete categories, each with a single probability of occurrence. The implications of this simplification for welfare estimation are unknown. This article evaluates the convergent validity of willingness-to-pay (WTP) estimates from a more accurate multiple-outcome treatment of OU, compared to the two-outcome approach. Results for a case study of coastal flood adaptation in Connecticut, United States, suggest that higher-resolution OU treatments increase choice complexity but can provide additional information on risk preferences and WTP. This tradeoff highlights challenges facing the valuation of uncertain outcomes.

Suggested Citation

  • Makriyannis, Christos & Johnston, Robert J. & Whelchel, Adam W., 2018. "Are Choice Experiment Treatments of Outcome Uncertainty Sufficient? An Application to Climate Risk Reductions," Agricultural and Resource Economics Review, Cambridge University Press, vol. 47(3), pages 419-451, December.
    • Handle: RePEc:cup:agrerw:v:47:y:2018:i:03:p:419-451_00
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    Cited by:

    1. Christos Makriyannis & Robert J. Johnston & Ewa Zawojska, 2022. "Do numerical probabilities promote informed stated preference responses under inherent uncertainty? Insight from a coastal adaptation choice experiment," Working Papers 2022-05, Faculty of Economic Sciences, University of Warsaw.
    2. Robert J. Johnston & Ewa Zawojska, 2018. "Benefit Transfer and Commodity Measurement Scales: Consequences for Validity and Reliability," Working Papers 2018-26, Faculty of Economic Sciences, University of Warsaw.
    3. Robert J. Johnston & Ewa Zawojska, 2020. "Relative Versus Absolute Commodity Measurements in Benefit Transfer: Consequences for Validity and Reliability," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(4), pages 1245-1270, August.
    4. Hermine Vedogbeton & Robert J. Johnston, 2020. "Commodity Consistent Meta-Analysis of Wetland Values: An Illustration for Coastal Marsh Habitat," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(4), pages 835-865, April.

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