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Using discrete choice experiments to regulate the provision of water services: Do status quo choices reflect preferences?

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  • Bruno Lanz
  • Allan Provins
Abstract
Discrete choice experiments (DCE) are increasingly used to quantify the demand for improvements to services provided by regulated utility companies and inform price controls. This form of preference elicitation, however, often reveals a high frequency of status quo (SQ) choices. This may signal an unwillingness of respondents to evaluate the proposed trade-offs in service levels, questioning the welfare theoretic interpretation of observed choices and the validity of the approach for regulatory purposes. Using the methodology for DCE in the regulation of water and sewerage services in England and Wales, our paper contributes to the understanding of SQ choices in several novel dimensions. First, we control for the perception of the SQ and the importance of attributes in day-to-day activities. Second, we use a split sample design to vary both the description of the SQ and the survey administration mode (online vs. in-person). Third, the service attributes can both improve or deteriorate, so that the SQ is not necessarily the least-cost option. Fourth, we examine SQ choices in individual choice tasks and across all tasks so as to identify the determinants of serial SQ choices. Our results suggest that individual SQ choices mostly reflect preferences and thus represent important information for the regulator. However, serial SQ choices are mainly driven by cognitive and/or contextual factors, and these responses should be analysed as part of standard validity tests.

Suggested Citation

  • Bruno Lanz & Allan Provins, 2015. "Using discrete choice experiments to regulate the provision of water services: Do status quo choices reflect preferences?," CIES Research Paper series 35-2015, Centre for International Environmental Studies, The Graduate Institute.
    • Handle: RePEc:gii:ciesrp:cies_rp_35
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Boxebeld, Sander, 2024. "Ordering effects in discrete choice experiments: A systematic literature review across domains," Journal of choice modelling, Elsevier, vol. 51(C).
    2. Lanz, Bruno & Provins, Allan, 2017. "Using averting expenditures to estimate the demand for public goods: Combining objective and perceived quality," Resource and Energy Economics, Elsevier, vol. 47(C), pages 20-35.
    3. Wan Norhidayah W Mohamad & Ken Willis & Neil Powe, 2019. "The Status Quo In Discrete Choice Experiments: Is It Relevant?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(02), pages 507-532, March.
    4. Oehlmann, Malte & Weller, Priska & Meyerhoff, Jürgen, 2014. "Complexity-induced Status Quo Effects in Discrete Choice Experiments for Environmental Valutation," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100616, Verein für Socialpolitik / German Economic Association.
    5. Bruno Lanz & Allan Provins, 2014. "The demand for tap water quality: Survey evidence on water hardness and aesthetic quality," CIES Research Paper series 23-2014, Centre for International Environmental Studies, The Graduate Institute.
    6. Murwirapachena, Genius & Dikgang, Johane, 2018. "An empirical examination of reducing status quo bias in heterogeneous populations: evidence from the South African water sector," MPRA Paper 91549, University Library of Munich, Germany.
    7. Shi, Wei & Halstead, John M. & Huang, Ju-Chin, 2017. "Market Experience Matters: Status Quo Effect in the Economic Valuation of Consumer Preferences for Local Produce," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258290, Agricultural and Applied Economics Association.
    8. Oehlmann, Malte & Meyerhoff, Jürgen & Mariel, Petr & Weller, Priska, 2017. "Uncovering context-induced status quo effects in choice experiments," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 59-73.

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    More about this item

    Keywords

    Cost-benefit analysis; Regulated utilities; Economic valuation; Discrete choice experiments; Individual decision making; Status quo effect.;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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