The Effects of Experience on Preference Uncertainty: Theory and Empirics for Public and Quasi-Public Environmental Goods

Citation

Czajkowski M, Hanley N & LaRiviere J (2013) The Effects of Experience on Preference Uncertainty: Theory and Empirics for Public and Quasi-Public Environmental Goods. Stirling Economics Discussion Paper, 2013-11.

Abstract
This paper develop and estimates a model of demand estimation for environmental public goods which allows for consumers to learn about their preferences through consumption experiences. We develop a theoretical model of Bayesian updating, perform comparative statics over the model, and show how the theoretical model can be consistently incorporated into a reduced form econometric model. We then estimate the model using data collected for two environmental goods. We find that the predictions of the theoretical exercise that additional experience makes consumers more certain over their preferences in both mean and variance are supported in each case.

Keywords
discrete choice experiment; preference learning; stated preferences; Bayesian updating; generalized multinomial logit; scale; scale variance

JEL codes

• C51: Model Construction and Estimation
• D83: Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Q51: Valuation of Environmental Effects
• H43: Project Evaluation; Social Discount Rate