Using labels to investigate scope effects in stated preference methods

Abstract

Insufficient sensitivity to scope (variations in the scale of the environmental good on offer) remains a major criticism of stated preference methods, and many studies fail a scope test of some sort. Across a range of existing explanations for insensitivity to scope (commodity mis-specification, embedding, warm glows) there seems to exist no clear conclusion on how to deal with the problem. This paper provides an alternative explanation for insufficient sensitivity to scope, based on re-definition of the determinants of value for environmental goods within an attributes-based choice model. In the proposed framework respondents' Willingness To Pay need depend not only on physical characteristics of a good, but may also depend on the 'label' under which the environmental good is 'sold' in the hypothetical market. To investigate this problem, a Choice Experiment study of biodiversity was conducted. We find that controlling for the effects of a label - in this case, national park designation - leads to significant increase in the scope sensitivity of welfare measures.