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Choice complexity in a Stated Choice Experiment: valuing environmental resources in Chile

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  • Andrés Gómez-Lobo
  • Javier Núñez
  • Cristobal Ruiz-Tagle

Abstract

The psychological literature has emphasized that choice complexity and other contextual factors affect how people make decisions. However, empirical economic choice models generally do not consider the complexity of different scenarios when estimating preferences from contingent valuation or stated choice models. Recently Swait and Adamowicz (2001b) propose and estimate a conditional logit model that takes into account choice complexity in making inferences from individual data. Choice complexity is modeled as an entropy index that measures how close choice alternatives are in preference space. This definition implies that choice complexity is a function of the same parameters as the utility function and they must be estimated simultaneously. We apply this framework to a stated choice experiment conducted in Chile to value the environmental impacts caused by hydroelectric projects, namely, the destruction of native forests and the relocation of indigenous communities. The survey contains close to 3.000 observations, which makes it an ideal data set to apply the estimation strategy proposed by Swait and Adamowicz (2001b). The results of this paper show that taking into account choice complexity in the modelling of individual decisionmaking increases the average valuation of the environmental resources under study. This evidence implies that valuation studies based on choice surveys that do not take into account choice complexity may lead to biased results.

Suggested Citation

  • Andrés Gómez-Lobo & Javier Núñez & Cristobal Ruiz-Tagle, 2003. "Choice complexity in a Stated Choice Experiment: valuing environmental resources in Chile," Working Papers wp206, University of Chile, Department of Economics.
    • Handle: RePEc:udc:wpaper:wp206
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    References listed on IDEAS

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    1. Wiktor Adamowicz & Peter Boxall & Michael Williams & Jordan Louviere, 1998. "Stated Preference Approaches for Measuring Passive Use Values: Choice Experiments and Contingent Valuation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 64-75.
    2. Ian J. Bateman & Richard T. Carson & Brett Day & Michael Hanemann & Nick Hanley & Tannis Hett & Michael Jones-Lee & Graham Loomes, 2002. "Economic Valuation with Stated Preference Techniques," Books, Edward Elgar Publishing, number 2639.
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    Cited by:

    1. De La Maza, Cristóbal & Davis, Alex & Azevedo, Inês, 2021. "Welfare analysis of the ecological impacts of electricity production in Chile using the sparse multinomial logit model," Ecological Economics, Elsevier, vol. 184(C).
    2. Soliño, Mario & Farizo, Begoña A. & Vázquez, María X. & Prada, Albino, 2012. "Generating electricity with forest biomass: Consistency and payment timeframe effects in choice experiments," Energy Policy, Elsevier, vol. 41(C), pages 798-806.

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