Market mechanisms for valuing public goods

Conventionally, inefficiencies in supplying socially optimal levels of natural amenities have been addressed by government intervention via taxes and subsidies. However, these measures may not result in the socially optimal level of provision because they are often influenced by collective action and may inadequately account for local tastes and preferences. This dissertation research addresses the ways in which private markets instead can be used to solve the dilemma of under-provision and over-exploitation of natural resources. The first manuscript examines a prominent ecolabeling program that provides consumers with information about responsible sourcing of seafood and investigates whether or not there is a demonstrated price premium in the retail market for ecolabeled seafood. The study specifically focuses on the commonly-voiced doubts regarding whether consumers are willing to pay a premium for the Marine Stewardship Council’s (MSC) label. The analysis utilizes scanner data on frozen pollock products from supermarkets in the metropolitan area of London, UK across a sixty-five week panel. I use a hedonic model to control for brand, package size, product type and form. I find evidence that consumers within the sampled area are paying a 14% premium for MSC-certified pollock products. The second and third manuscripts address the possibility of creating a direct market for natural amenities in which consumers can contract with suppliers or custodians of the resource. However, complications arise when eliciting preferences for natural amenities because they are often public goods and thus are non-rival and non-excludable, i.e. scenic views, clean air and drinking water, etc. Willingness to pay for public goods are difficult to measure because individuals have incentives to hide their true values for the good offered for exchange. This research deals with the two most prominent sources of this bias: incentives to free-ride on others’ contributions and the tendency of respondents to overstate their values when no monetary consequence exists. The second manuscript explores how well laboratory-tested public goods elicitation mechanisms that mitigate free-riding perform in the field. I employ a mixed logit model in willingness-to-pay space to estimate individual-specific willingness to pay for protecting grassland nesting bird habitat on farmland and compare some of the most promising elicitation mechanisms in their ability to produce results that yield the highest valuations. I also estimate individual-specific measures of the scale of the error variance and test which elicitation mechanisms are the least noisy. I find evidence that providing a familiar reference mechanism induces behavior more in line with laboratory results, but that otherwise, individuals tend to ignore the elicitation mechanisms in the field. The third manuscript addresses a continuing debate [1, 2] in the literature regarding whether hypothetical choice experiment surveys can accurately reflect revealed preferences in a market for public goods. This issue is particularly important in studies involving valuation of public goods and common-pool resources because non-rival non-exclusive goods imply a disconnect between what is paid for and what can be consumed. I utilize a latent class model of attribute non-attendance to identify individuals who are more or less likely to accurately state their willingness-to-pay for habitat preservation for grassland nesting birds on farmland. I find that hypothetical bias differs based on the strategy employed in the stated preference experiment and that individuals who are estimated to fully attend to all attributes are more likely to generate reliable preference estimates. Overall, this research provides guidance on market approaches for enhancing environmental public goods provision.