A Mire of Discount Rates: Delaying Conservation Payment Schedules in a Choice Experiment
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A Mire of Discount Rates: Delaying Conservation Payment Schedules in a Choice Experiment Ioanna Grammatikopoulou1,2 · Janne Artell1 · Turo Hjerppe3 · Eija Pouta1 Accepted: 4 September 2020 / Published online: 19 September 2020 © The Author(s) 2020
Abstract Studies on the public’s implicit discount rate in the willingness to pay for environmental amenities have mostly employed contingent valuation surveys. We investigate respondents’ time preferences using choice experiments with four payment schedules in a split-sample design in the context of mire conservation. We first examine preference and taste heterogeneity among respondents, finding them to a large extent independent of payment schedules. Next we use an endogenous approach to jointly estimate the implicit discount rates and preferences using choice experiments data. We explore exponential and hyperbolic discounting model specifications. We find insensitivity to the length of the payment period and support for hyperbolic discounting. Furthermore, we provide policy relevant valuation results concerning mire conservation. Keywords Exponential discounting · Hyperbolic discounting · Choice experiment · Mixed logit model
1 Introduction Stated preferences studies require respondents to trade between flows of benefits and costs. The role of these flows in valuation and decision making is exacerbated when assessing benefits related to conservation measures. Perceived and actual conservation benefits accrue relatively slowly after measure implementation compared to costs, which are typically borne immediately. Such tradeoffs require valuation survey respondents intertemporal choice making thus including time preferences in the valuations. Time preferences are manifested in cost–benefit analysis by the choice of a discount rate. The economic feasibility of a lengthy environmental restoration or conservation project with immediate (opportunity) costs and a slow flow of benefits over time is sensitive to the choice of discount rate (Vasquez-Lavin et al. 2019) and its form. While the appropriate social discount rate * Ioanna Grammatikopoulou [email protected] 1
Natural Resources Institute Finland (Luke), Helsinki, Finland
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Global Change Research Institute of the Czech Academy of Sciences, Brno, Czech Republic
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Finnish Environment Institute, Helsinki, Finland
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in cost–benefit analysis of intergenerational policy effects is a topic of discussion in itself (Freeman and Groom 2014; Groom et al. 2005), the discount rate and its form implicitly or explicitly expressed by the current generation remains an area with relatively few empirical examples. In valuation context the public’s discount rate has been studied by altering the time schedule for providing the good or the payments. The typical approach in analysing the effect of a payment schedule on willingness to pay, or the embedding effect in timing, has been to compare a lump-sum payment with some series of payments (Table 8, “Appendix”
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