Single versus joint preference for tap water: a structural choice modelling investigation
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Date
2011
Authors
Rungie, C.M.
Riccardo, S.
Thiene, M.
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Conference paper
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AERE Inaugural Summer Conference, 2011, pp.1-24
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AERE Inaugural Summer Conference (9 Jun 2011 - 10 Jun 2011 : Seattle)
Abstract
Tap water is a typical complex good that is provided at the household level and which can be decomposed into a number of attributes. Members of households may display substantially different tastes for water attributes and, importantly, tap water is a good that is certainly familiar to all. The theoretical and applied literature on household economics has made substantial progress in modelling joint preferences marketing and transport (Arora and Allenby, 1999; Adamowicz et al., 2005; Hensher et al., 2008), less progress has been made in terms of empirical applications in the field of environmental and resource economics. Investigating people’s preferences from choice data coming from a group rather than a single agent, without necessarily assuming that the latter is representative of the household provides more informative estimation. In the context of tap water, results obtained from disentangling individual preferences in group decisions have important implications for both policy and survey practice. These implications are of particular salience when preference surveys are designed to inform the process of definition or/and negotiation of water tariff between water utilities and regulatory bodies in charge of evaluating the adequacy of the tariffs and the economic management of the water utilities. Currently this is particularly relevant in Italy, where recent legislation has shifted the control of water supply to newly constituted local water network utilities, which are supposed to be market driven. In this study we use data from a widely employed form of stated preference survey for multi-attribute goods, choice experiments. The salient feature of the data collection is that members of households have provided choice responses first as individuals, and then jointly as a family. To adequately investigate preference heterogeneity of household members for tap water one of the main issues is how to empirically measure these differences, considering that results can be quite sensitive to choice of model specification. Within this context, in this paper we explore two issues. Within this context, we explore the use of an innovative modelling approach, namely the structural choice modelling (hereafter SCM). SCM is an alternative econometric framework for modelling choice data using latent variables, by combining data generated from separate but related surveys and thereby simultaneously modelling several choice experiments (Rungie, 2011; Rungie et al., 2010, 2011; Coote et al., 2011). With respect to previous applications in environmental economics this approach allows tow advantages: (i) the incorporation of latencies and (ii) the simultaneous estimation of structural causal factors from individual and joint choice. The present study adds to the existing literature in several ways. First, it is one of the few existing applications of structural choice models to investigate latency in preference heterogeneity. Second, to our knowledge this is the first empirical study in the field of the environmental and resource economics. Ultimately, it is the first time that data from more than two choice experiments are simultaneously modelled.
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Copyright 2011 Cam Rungie, Riccardo Scarpa and Mara Thiene