Muddying the Water? An Analysis of Non-Constant Baselines in Stated Preference Surveys

Defining baseline conditions is a key component of regulatory benefit-cost analysis. Most stated preference studies assume that the current state of the world in the absence of additional policy action remains constant. In the time that passes while a regulation is evaluated, implemented, and produces the intended environmental impacts, however, this is unlikely to be the case. To address this largely unexplored area of nonmarket valuation, we administer a stated preference survey using a three-way split sample design. Respondents are either told future baseline conditions would remain constant, decline, or improve without additional policy interventions. While we find some evidence to support predictions of the standard theoretical model, we also find that behavioral and emotional reactions to the non-constant baseline scenarios muddy the waters, introducing some countervailing factors. These results have implications for the design and use of stated preference results in benefit-cost analysis.