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Incentive Compatibility and the Consequences When It Is Missing: Experiments with Water Quality Credits Purchase

Author

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  • Pengfei Liu
  • Stephen K. Swallow

Abstract

This article implemented four treatments to elicit preferences for a nonmarket good, including (1) a hypothetical referendum, (2) a real referendum lacking incentive compatibility, (3) a real choice with incentive compatibility, and (4) a hybrid approach based on (2) and (3). We develop a method to estimate the probability that observed choices do not identify the highest-utility alternative in a choice question. We find that in the hypothetical referendum, the estimated percentage of individuals choosing the alternative that gives the highest utility is the lowest among the treatments. Adding policy consequentiality or payment consequentiality increases the percentage of truthful responses.

Suggested Citation

  • Pengfei Liu & Stephen K. Swallow, 2021. "Incentive Compatibility and the Consequences When It Is Missing: Experiments with Water Quality Credits Purchase," Land Economics, University of Wisconsin Press, vol. 97(4), pages 893-910.
    • Handle: RePEc:uwp:landec:v:97:y:2021:i:4:p:893-910
    Note: DOI: 10.3368/le.97.4.050920-0064R1
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    File URL: http://le.uwpress.org/cgi/reprint/97/4/893
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    Citations

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    Cited by:

    1. Qianfeng Luo & Pengfei Liu & Zhi Li, 2023. "The influence of African swine fever information on consumers’ preference of pork attributes and pork purchase," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 71(1), pages 49-68, March.
    2. Li, Zhi & Liu, Pengfei & Swallow, Stephen K., 2022. "The performance of multi-type environmental credit trading markets: Lab experiment evidence," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).

    More about this item

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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