The impact of perceptions in averting-decision models: an application of the special regressor method to drinking water choices

Bontemps, Christophe and Nauges, Céline (2016) The impact of perceptions in averting-decision models: an application of the special regressor method to drinking water choices. American Journal of Agricultural Economics, 98 1: 297-313. doi:10.1093/ajae/aav046


Author Bontemps, Christophe
Nauges, Céline
Title The impact of perceptions in averting-decision models: an application of the special regressor method to drinking water choices
Journal name American Journal of Agricultural Economics   Check publisher's open access policy
ISSN 1467-8276
0002-9092
Publication date 2016-01-01
Year available 2015
Sub-type Article (original research)
DOI 10.1093/ajae/aav046
Open Access Status Not Open Access
Volume 98
Issue 1
Start page 297
End page 313
Total pages 17
Place of publication Cary, NC, United States
Publisher Oxford University Press
Language eng
Abstract Households’ monetary valuation of water quality is a prerequisite for efficient water resource management and the valuation of water quality protection policies. Individuals are commonly questioned about their perception of risk in valuation surveys based on stated-preference methods and revealed-preference methods such as averting-behavior models. These subjective and often discrete measures are commonly used to explain individuals’ actions to protect themselves against these risks. Perceptions appear as endogenous variables in traditional theoretical averting decision models but, quite surprisingly, endogeneity of perceived risk is not always controlled for in empirical studies. In this article, we argue that perceptions have to be treated as endogenous to averting decisions in order to produce accurate and reliable measures of households’ valuation of water quality improvements. We present various binary averting decision models featuring an endogenous discrete variable (such as risk perception). In particular, we compare the traditional bivariate probit model with the special regressor model, which is less well-known and relies on a different set of assumptions. In the empirical illustration using household data from Australia, Canada, and France, we study how the perceived health impacts of tap water affect a household’s decision to drink water from the tap. Individuals’ perceptions are found to be endogenous and significant for all models, but the estimated marginal effect is sensitive to the chosen model. Our empirical application also includes some tests of the special regressor estimator’s sensitivity to underlying assumptions.
Keyword Averting behavior
Binary-decision models
Drinking water
Risk perception
Special regressor
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2016 Collection
School of Economics Publications
 
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Created: Sat, 16 Jan 2016, 03:35:20 EST by Celine Nauges on behalf of School of Economics