Distributional preferences and the incidence of costs and benefits in climate change policy

Transcription

1 Dstrbutonal preferences and the ncdence of costs and benefts n clmate change polcy Bele Ca, Trudy Ann Cameron* Department of Economcs, 435 PLC, 1285 Unversty of Oregon, Eugene, OR and Geoffrey R. Gerdes Board of Governors of the Federal Reserve System, Washngton, DC, USA November 12, 29 * Correspondence (e-mal: cameron@uoregon.edu ) Acknowledgements: The data for ths study were collected wth fundng from the Natonal Scence Foundaton (SES ). Ths research was supported n part by the endowment of the R.F. Mkesell Char n Envronmental and Resource Economcs at the Unversty of Oregon. We are grateful to Vlja Gulbnas for assstance wth survey development and mplementaton at UCLA. We are also grateful for the very generous cooperaton of 114 nstructors at 92 dfferent colleges and unverstes n the U.S. and Canada who announced our survey to ther classes and encouraged partcpaton, and to partcpants at the 27 Heartland Envronmental & Resource Economcs Workshop (Ames, IA), the 27 CU Envronmental and Resource Economcs Workshop (Val, CO), and the 28 EAERE conference (Gothenburg, Sweden). Dan Burghart and Ron Daves have also provded helpful suggestons. The opnons expressed n ths paper are those of the authors and do not necessarly reflect the opnons of the Federal Reserve Board of Governors or ts staff.

2 Dstrbutonal preferences and the ncdence of costs and benefts n clmate change polcy Abstract: We explore the relatonshp between wllngness to pay (WTP) for clmate change mtgaton and dstrbutonal preferences, by whch we mean ndvduals opnons about who should be responsble for clmate change preventon and whether the share of clmate change mpacts borne by the poor s a cause for concern. We use 177 responses to an onlne stated preference survey. The domestc costs n our survey s polcy choce scenaros are expressed as a set of randomzed shares across four dfferent payment vehcles, and the nternatonal cost shares are randomzed across four groups of countres. We also elct respondents perceptons of the lkely regressvty of clmate change mpacts under a polcy of busness-as-usual. WTP s hgher when larger cost shares are borne by partes deemed to bear a greater responsblty for mtgaton, and when respondents beleve (and care) that the mpacts of clmate change may be borne dsproportonately by the world s poor. That WTP for an envronmental polcy depends on the dstrbutonal consequences of the polcy s an unsettlng result: effcency assessments are typcally assumed to be separate from equty consderatons n most beneft-cost analyses. Key words: clmate change, dstrbutonal preferences, equty, regressvty, stated preference, payment vehcle, construct valdty JEL: C35, C42, H41, Q51, Q54

3 I. Introducton The 27 Nobel Peace Prze was awarded to the Intergovernmental Panel on Clmate Change (IPCC) and Albert Gore for ther efforts to buld up and dssemnate greater knowledge about man-made clmate change, and to lay the foundatons for the measures that are needed to counteract such change." Accordng to the Nobel Commttee, [e]xtensve clmate changes may alter and threaten the lvng condtons of much of manknd. They may nduce large-scale mgraton and lead to greater competton for the earth's resources. Such changes wll place partcularly heavy burdens on the world's most vulnerable countres. There may be ncreased danger of volent conflcts and wars, wthn and between states. In other words, clmate polcy s relevant to world peace because of ts dstrbutonal consequences. We mght (a.) allow clmate change to proceed, va a polcy of busness-as-usual, and merely learn to adapt, or (b.) embark upon more- or less- aggressve polces to lmt clmate change. Dependng upon our choces, the domestc and nternatonal dstrbutons of net benefts are lkely to be very dfferent and perhaps very unequal. Ths nequalty has the potental to cause sgnfcant regonal and/or global strfe. As Stern (26) emphaszes n hs landmark revew of clmate change for the U.K. government, Clmate-related shocks have sparked volent conflct n the past, and conflct s a serous rsk n areas such as West Afrca, the Nle Basn and Central Asa (p. v). 1 The dstrbuton of costs and benefts has been an mportant ssue n clmate negotatons as well. Many dfferent authors have consdered the dstrbuton of clmate change mpacts and ssues related to the problem of how to craft domestc polces and nternatonal agreements concernng clmate change mtgaton whch are suffcently acceptable n terms of ther dstrbutonal consequences. Some examples nclude Azar and Sterner (1996), Stephan and 1 Some reactons to the Stern Revew nclude Nordhaus (27) and Wetzman (27), as well as a symposum n the Revew of Envronmental Economcs and Polcy, ncludng Mendelsohn (28), Sterner and Persson (28), Weyant (28), and Detz and Stern (28), as well as further comments and rejonders n subsequent ssues.

4 Muller-Furstenberger (24), Rebsten (25), Thomas and Twyman (25), Lange (26), Mendelsohn et al. (26), Parks and Roberts (26), Raymond (26), and Anthoff et al. (29). In contrast to these types of studes, we nvestgate ndvdual preferences for clmate change polces. Lange et al. (27) survey a sample of ndvduals who are actually nvolved wth nternatonal clmate polcy, but we explore the preferences of ordnary non-experts. We demonstrate that the dstrbutonal consequences of clmate change polcy both n terms of the domestc and nternatonal dstrbutons of mtgaton costs, and the regressvty of perceved clmate change mpacts n the absence of mtgaton can have strongly sgnfcant effects on ndvdual wllngness to pay for preventon for some people, although not for everyone. Numerous other studes whch have sought to value envronmental publc goods have certanly ncluded people s atttudes about the mportance of these publc goods as determnants of wllngness to pay for ther protecton. To our knowledge, however, ths s the frst study of wllngness to pay (WTP) for clmate change mtgaton to undertake a comprehensve assessment of the effects of heterogenety n normatve opnons about responsblty for mtgaton and concerns about the regressvty of clmate change mpacts. Dfferent perceptons about responsblty are very clearly relevant to how domestc and nternatonal polcy-makng authortes mght contemplate the mplementaton of future clmate polces. To address normatve preferences over the dstrbuton of costs and benefts n clmate change mtgaton polces (ncludng a polcy of no acton), we use a comprehensve onlne survey of ndvduals concernng ther personal clmate polcy preferences. At the core of ths survey, after an extensve preamble, s a so-called stated preference (SP) queston concernng some alternatve polcy optons. The queston s posed as a hypothetcal referendum, and each 2

5 polcy alternatve s descrbed n terms ts lkely costs and benefts. 2 In the exstng lterature, Flores and Strong (27) note that beneft-cost analyss, especally when t employs stated preference methods, cannot be done properly wthout careful attenton to the queston of who wll pay the costs. These authors note that If researchers are elctng values for publc goods, they need to make clear the costs to others. Our survey does an unusually thorough job of specfyng how the costs of the dfferent polcy optons wll be borne. The revew by Stern (26) ponts out that Polces also have mportant dfferences n ther consequences for the dstrbuton of costs across ndvduals, and ther mpact on publc fnances (p. xv). Ours appears to be the frst SP clmate polcy survey to randomze, across ts choce scenaros, both the domestc dstrbuton of the ntal ncdence of mtgaton costs, and the nternatonal dstrbuton of global mtgaton costs across dfferent country groups. 3 We also elct from each respondent a subjectve assessment of the extent to whch the adverse effects of clmate change wll be borne by the poorest 5% of the world s populaton. Ths s nterpreted as an estmate of the expected regressvty of a busness-as-usual polcy, when nothng s done to prevent clmate change. Ths expected regressvty s reflected n the Stern Revew s recognton that the mpacts of clmate change are not evenly dstrbuted the poorest countres and people wll suffer earlest and most. (See Stern (26), p. v.) Our analyss makes use of normatve opnons, elcted from each ndvdual survey respondent, whch allow us to control for certan types of preference heterogenety that are typcally unobserved. Most stated preference surveys collect an array of observable 2 Stated preference studes of consumer demand have been used wdely n the marketng lterature, the transportaton economcs lterature, the envronmental economcs lterature, and ncreasngly n the health economcs lterature. Early examples were fraught wth problems, but much has been learned over the last two decades n how to desgn these surveys to collect the most relable nformaton possble. Where actual revealed preference (RP) nformaton s avalable, most economsts stll strongly prefer to rely on these actual choces as ther data. In many cases, however, no approprate RP nformaton s avalable, and SP survey data represent the best possble alternatve source of nformaton about consumer demands. 3 In a revew of exstng SP studes, Schlapfer (26) fnds that very few such surveys employ payment mechansms whch are sophstcated enough to cover varous payment vehcles wth specfc cost dstrbutons. 3

6 socodemographc characterstcs for each respondent. If preferences are allowed to be heterogeneous, these observable characterstcs are sometmes used as shfters for the preference parameters n stated choce models. 4 It s much less common to seek to measure drectly each ndvdual s atttudes wth respect to dfferent attrbutes of the polcy alternatves n a set of stated preference choce scenaros. In our study, we ask each respondent about the extent to whch they agree or dsagree wth the responsblty of a range of dfferent domestc and nternatonal groups to bear the costs of clmate change mtgaton. We also enqure about the extent to whch each ndvdual professes to be worred about the equty or farness of lkely clmate change mpacts. We argue that these atttudes (or levels of concern) are some of the underlyng latent factors that we would typcally attempt to proxy usng observable socodemographc characterstcs. In ths survey, however, we have drect measures of these atttudes. Our paper shows that the dstrbutons of costs and benefts assocated wth clmate change polcy are consdered by some respondents to be relevant polcy attrbutes n decdng ther wllngness to pay (WTP) for that polcy. The dstrbutonal consequences have greater relevance to ndvduals who have explctly agreed (or explctly dsagreed) wth separate statements concernng the degree of responsblty for mtgaton costs that should belong to those groups who are descrbed as bearng larger shares of those costs under the polcy scenaro n queston. Addtonally, WTP s enhanced when a respondent both beleves that clmate change mpacts wll be regressve, and cares about ths outcome. 4 As an alternatve approach to preference heterogenety, the researcher may allow each preference parameter to vary randomly. A dstrbutonal famly s specfed for each preference parameter and the researcher estmates both the expected value and the dsperson of each parameter (and sometmes the covarances among parameters) across the sample. More rarely, preference parameters may vary both systematcally wth observable characterstcs, and randomly, n the same model. 4

7 We also demonstrate consderable systematc heterogenety n WTP accordng to a number of socodemographc and deologcal varables. It s strkng that for a number of dfferent groups, there s lttle evdence that WTP exceeds zero unless the varables whch capture dstrbutonal atttudes are brought nto play. However, under the rght mx of polcy attrbutes (domestc and nternatonal cost dstrbutons), expectatons about clmate change mpacts, socodemographc characterstcs, and atttudes (dstrbutonal preferences), predcted WTP can be dramatcally hgher. Dsagreements about the urgency of clmate change mtgaton polcy undoubtedly stem from ths heterogenety n belefs and atttudes, as well as from dfferences n the lkely ncdence of the costs and benefts of every possble polcy, ncludng the status quo. Fnally, our evdence that WTP for clmate change mtgaton polces depends crtcally upon respondents stated dstrbutonal preferences s an unsettlng result from the perspectve of beneft-cost analyss of publc programs and regulatons. Economsts commonly approach welfare analyss by assumng that effcency consderatons can be dvorced from equty concerns. Flores (22), though, rases the queston of whether purely selfsh values for publc goods exst, n practce. Our emprcal fndngs respond to Flores queston. Purely selfsh values for an envronmental publc good could presumably be derved ndependent of any nformaton about how much others mght beneft from the polcy or how much they would be requred to pay for t. Based on our results, we argue that the usual WTP estmates employed as benefts measures n the types of beneft-cost analyses that address effcency questons should be approached wth cauton. We contend that ndvdual WTP often cannot be derved wthout reference to the dstrbutonal consequences (be they explct or mputed) of the proposed polcy or regulaton, controllng for each ndvdual s atttudes about these dstrbutonal consequences. Such normatve concerns probably apply much more broadly than to just ths clmate polcy 5

8 study. We argue that ssues such as those explored n ths study should be on the table from the desgn stages through the fnal analyss n most economc assessments of publc polces and proposed regulatons. The research descrbed n ths paper has connectons to a number of persstent themes n the lterature on the valuaton of non-market publc goods. Frst, t s well-known that the payment vehcle (.e. who wll pay for a polcy, and how) can matter very much n studes desgned to determne WTP for a non-market publc good. Ths s typcally because dfferent payment vehcles mply dfferent ntal ncdence for polcy costs and therefore dfferent dstrbutonal mpacts for a polcy. Payment vehcle effects also reflect perceptons about opportuntes for free-rdng, where subjects may prefer a payment vehcle that mposes a greater share of the costs of the polcy on someone else. In SP studes, the desgnated payment vehcle conveys an mplct ncdence for the costs of the polcy and can thus t be a crucal determnant of wllngness to pay (WTP) for mprovements n non-market envronmental goods. Ths undesrable senstvty reveals that respondents, on average, prefer some types of payment vehcles (.e. some types of dstrbutonal consequences) to others. 5,6 Another ven n the lterature concerns the polluter-pays prncple (PPP) and related notons of clean-up responsblty that have been examned n prevous studes. Johnson (26) suggests that ndvduals are nclned to pay more when the cost share pad by polluters ncreases. In the present study, we are specfcally nterested n ndvduals preferences over the 5 An assortment of payment vehcle ssues are addressed n de Blaej et al. (23), Rollns (1997), Bergstrom et al. (24), Morrson et al. (2), and Florax et al. (25). The lterature has also touched on other questons about the detals of how a publc good would be provded. Stevens et al. (1997) fnd that respondents valuatons of a good can be qute senstve to whether perodc or lump sum payment schedules are employed. Champ et al. (22) determne that payment mechansms wth dfferng ncentve structures gve rse to dfferent mpled values. 6 In a related ven of the emprcal lterature, t has been noted that respondents preferences over the dstrbutonal consequences mpled by payment vehcles can trgger so-called protest votes, and the researcher s choce of payment vehcle can thus play an mportant role n managng the odds of such protest votes. Jorgensen and Syme (2) note that voters may object to only one aspect of the SP survey, such as the selected payment vehcle and ts coverage. Morrson, Blamey et al. (2) fnd that ncorporatng respondents atttudes toward the selected payment vehcle may reduce the bas resultng from dfferences n the coverage of payment vehcles. 6

9 dstrbuton of costs among varous categores of payers (domestcally, va ther exposures to dfferent types of payment vehcles). In contrast to earler studes, however, the choce s not whether the costs wll be pad just by polluters, or by the general populaton. Instead, the general populaton s collectvely requred to pay all the costs, but polces dffer n terms of whch segments of socety wll bear what share of these costs. Indvduals may play a varety of roles n socety, such as taxpayers, consumers, energy users, and ndustry nvestors. Furthermore, everyone s a polluter, n some capacty, when t comes to clmate change. Realstcally, the ntal ncdence of domestc polcy costs s lkely to be felt va a varety of payment vehcles smultaneously (ncludng ncome tax ncreases, consumer prce ncreases, energy tax ncreases, and decreases n nvestment returns). We randomly assgn a stated cost share for all four of these domestc payment vehcles, and examne how people s utlty from a proposed polcy dffers when the cost share assgned to each payment vehcle vares. Stated nternatonal shares of global mtgaton costs are also randomly assgned for the same research purpose. Ths aspect of the survey desgn allows us to examne the nfluence on polcy choces of respondents preferences across payment vehcles (domestcally) and dfferent groups of countres (nternatonally). SP methods are typcally afforded much greater scrutny than revealed preference (RP) methods as a tool for beneft-cost analyss. 7 SP researchers thus endeavor to verfy the theoretcal construct valdty of SP estmates n varety of ways. The models examned n ths paper can also be nterpreted as tests of the theoretcal construct valdty of respondents WTP for clmate change mtgaton programs. 8 WTP and planned behavoral changes have been shown to 7 A standard ctaton for early crtcsm of SP methods s Damond and Hausman (1994). An early assessment by an ndependent Blue Rbbon Panel s reported n Arrow et al. (1993). 8 Theoretcal construct valdty generally refers to the correlaton of mpled ndvdual WTP amounts wth other objectve or subjectve factors that logc suggests should be systematcally related to the magntude of WTP. So-called convergent construct valdty s sometmes also assessed (e.g. by assessng the correspondence between 7

10 depend on belefs and atttudes about envronmental publc goods n many contexts, but n ths paper, we show that that the stated choces also bear plausble relatonshps to respondents preferences over the mx of payment vehcles (.e. the dstrbutonal consequences n terms of clmate change mtgaton polcy costs) as well as ther concerns about the potental regressvty of the status quo opton. These dentfed regulartes should encourage future researchers, n many dfferent welfare assessment contexts, to elct and use respondents normatve opnons about responsblty for polcy costs and the potental regressvty of dfferent polcy optons. At ths pont, we need to be very clear about the nnovatons offered by ths research. Competent beneft-cost analysts have always been concerned wth the dstrbutonal consequences of alternatve polces. 9 Typcally, ndvdual net benefts are determned, then the polcy-maker consders the dstrbuton of these ndvdual net benefts across dfferent segments of the populaton, as n the type of tableau recommended by Krutlla (25). 1 Overall socal net benefts can only be determned after a set of dstrbutonal weghts has been selected, although these weghts often default to equalty. In contrast, our work emphaszes that dstrbutonal consderatons cannot be postponed to a second step that s subsequent to the calculaton of ndvdual net benefts. Instead, ndvdual net benefts often cannot be determned wthout specfc reference to the dstrbutonal consequences of the proposed polcy, both n terms of benefts and n terms of costs. avertng costs and WTP estmates, as n Laughland et al. (1996). Alternately t s sometmes possble to compare WTP nferences from respondents expressed votng preference and estmated WTP, as n Berrens et al. (1998), and between WTP estmates obtaned from dfferent elctaton methods (see Whtehead et al. (1998)). 9 Atknson et al. (2) and Turner (25) dscuss the practce of beneft-cost analyss, the use of equal weghts or alternatve socal welfare functons, and other consderatons wth respect to envronmental equty. 1 Krutlla (25) proposed a Kaldor-Hcks tableau for assessment of the dstrbutonal consequences of a project. Ths s a matrx where rows gve the types of benefts, costs, and fnancal transfers, and the columns dsaggregate these effects by stakeholder group. Ths fuller dsclosure of the dstrbuton of benefts, costs, and transfers makes t easer for polcy-makers to apprecate the net benefts for dfferent groups and, presumably, to employ subjectve dscretonary weghts n the process of makng a decson. 8

11 II. Avalable Data: The onlne clmate change survey The sample used here s drawn from a populaton consstng prmarly of college students who were surveyed durng 21. Respondents were recruted by 114 dfferent nstructors from classes at 92 dfferent colleges and unverstes throughout the U.S. and Canada. Our dataset conssts of 177 responses to a comprehensve onlne survey of clmate change. Ths mult-campus analog to a conventonal classroom survey ( ) uses a remotely admnstered Web-based questonnare. 11,12 A. Predcted mpacts of clmate change Many scentsts now beleve that clmate change has the potental to pose major threats to agrculture, weather, human health, and ecosystems. 13 In our survey, we elcted respondents subjectve concerns about clmate change mpacts across fve broad categores. We asked: How worred are you about the vulnerablty to clmate change of each of the followng? The categores of mpacts were descrbed as Agrculture, Water, Ecosystems, Human health, Oceans, Weather, and Equty, Farness. Respondents levels of concern regardng each 11 The core portons of ths survey are very smlar to those of a related general-populaton mal survey reported n Lee and Cameron (28). The randomzatons n that survey were less extensve, snce the mal survey format s more lmtng than the onlne medum employed for ths study. To demonstrate the presence of preferences over the dstrbutonal consequences of alternatve polces, the more homogeneous student sample actually seems to make t easer for us to detect systematc effects. It s less necessary to control for varables such as age, educaton, employment status, martal status, etc., that mght confound our ablty to detect sgnfcant dstrbutonal preferences n a sample of fewer than 2 respondents. 12 Berrens et al. (23) and Berrens et al. (24) report upon the fndngs from another extensve onlne clmate survey. They employ a splt-sample desgn where respondents were gven ether basc nformaton or enhanced nformaton about global clmate change and the Kyoto Protocol, and ther survey uses ncreased energy and gasolne prces, alone, as the payment vehcle. They also use an 11-level scale whch measures whether the respondent beleves that the Kyoto Protocol s far, and respondents who perceved greater farness had hgher WTP values. Our survey goes nto consderably greater detal on the farness dmenson. Our dfferent clmate polces vary n ther level of cost to the ndvdual and the domestc and nternatonal dstrbuton of ther costs, and heterogeneous measures of the sze and dstrbuton of clmate change mpacts (benefts of mtgaton) are subjectvely elcted. We elct atttudes that correspond to respondent s perceptons of farness on all of these dmensons. 13 For example, see Bosello et al. (26), Kelly et al. (25), Knnell et al. (22), and Kurukulasurya et al. (26). 9

12 category of mpacts can be descrbed as one of the alternatves not worred, somewhat worred, very worred, and don t know. 14 We also elcted respondents subjectve expected ratngs of antcpated clmate change mpacts: Worldwde, how do you thnk clmate change wll affect each of the followng, by 3 years from now, f a polcy of Busness-as-Usual s followed? 15 Respondents were nvted to rate clmate change mpacts (as ether sngle values or ntervals) on a smple nne-pont scale rangng from -4 for extremely negatve mpacts, to +4 for extremely postve mpacts. 16 B. Atttudes Respondents were specfcally asked to ndcate ther atttudes about the extent to whch responsblty for the costs of clmate change mtgaton should be borne by varous payers. 17 Sx classes of domestc payers are proposed, ncludng ndvdual tax-payers, consumers, energy users, ndustry (nvestors), energy producers, and government. Seven types of nternatonal payer groups were also proposed, ncludng ndustralzed countres, the countres of the former Sovet Unon, densely populated developng countres lke Inda and Chna, the Unted States and ts major tradng partners, developng countres that are begnnng to pollute heavly, the 14 We provde an Onlne Appendx contanng selected examples of screens from our randomzed onlne survey. Onlne Appendx Fgure A.1 shows one example of how respondents were nvted to rate ther degree of worry about dfferent mpacts. The Equty & Farness mpact was always lsted last, but the other four types of mpacts appeared n random order across respondents (although n a consstent order wthn each survey nstrument). Degree of worry and WTP has been explored n other contexts n Hanley et al. (21) and Schade et al. (22). 15 Focus groups made t clear that t would be mpossble to elct complete antcpated tme profles of future clmate change mpacts, so we opted to have them focus on just one future date, far enough out that detectble effects mght be antcpated, but not so far as to le beyond the lfe expectancy of someone currently ffty years of age. 16 Onlne Appendx Fgure A.2 shows one example of the elctaton of antcpated clmate change mpacts. We ntally use the pont values or nterval mdponts for these ratngs as an approxmately contnuous measure of antcpated clmate change mpacts on each dmenson. [A complete dstrbuton of these detaled pont values or nterval mdponts s presented n Onlne Appendx Table B.1.] 17 An example of ths survey screen appears n Onlne Appendx Fgure A.3. In ths varant, fve answer optons were avalable for each queston. The desgn of the questonnare ncorporates an unusually wde array of dynamcally generated randomzed elctaton formats that permt assessment of the senstvty of choces to dfferent elctaton strateges. On the surface, these dfferent elctaton formats may appear to be arbtrary and nconsequental, but emprcally, they may have systematc effects upon choces (e.g. DeShazo and Fermo (22), Hensher (26)). In ths paper, we merely control for such dfferences where necessary, rather than make ther effects the focus of the analyss. 1

13 smaller developng countres, and countres n proporton to ther contrbuton to the problem. In the most-extensve elctaton format, respondents atttudes could be one of the followng: agree strongly, agree, neutral, dsagree, or dsagree strongly. Atttudes about who should bear the costs of clmate change are certanly ntertwned wth the mx of selfsh and other-regardng preferences that characterzes each respondent. Someone who has an ncome low enough that they pay relatvely lttle ncome tax may be more favorably nclned towards clmate polces where ncome taxes fund a greater share of the ntal costs of mtgaton. Someone wth a substantal portfolo of nvestments may be less n favor of a polcy where the ntal mpact s felt more n the form of lower nvestment returns. C. Clmate polcy choces In splt samples, ether two or three polcy alternatves were proposed. In the two-alternatve case, these ncluded Maxmum clmate change preventon whch we label as Complete Mtgaton (CM) and Busness-as-Usual (BAU). 18 CM s when the respondent s antcpated clmate change mpacts are essentally prevented, keepng the clmate much as t s today. However substantal costs would be ncurred to acheve ths goal. Under a BAU polcy, however, the respondents antcpated clmate change mpacts wll be realzed, perhaps wth mplct adaptaton expenses, but no addtonal clmate change mtgaton costs wll be ncurred. Respondents who were presented wth three-alternatve choce sets also saw an ntermedate opton called Partal Mtgaton (PM), where the BAU mpacts are scaled back 18 The survey tself uses the term preventon rather than mtgaton, snce focus groups showed that not everyone was famlar wth the mtgaton term. In our emprcal model, we nclude a shared ncrement to ndrect utlty for any alternatve nvolvng a departure from the status quo, plus a second ncrement for the partal mtgaton opton, when t s offered. The margnal utlty assocated wth these ndcator varables helps to keep some addtonal unobserved heterogenety, across alternatves, out of the error term. 11

14 non-proportonately, but not elmnated, and the cost of the polcy s randomly lower than for CM. 19 Under PM and CM, the overall domestc preventon cost s randomzed n terms of the expected costs that households wll have to pay, subject to the constrant that the cost for PM s always less than that for CM. We convey to ndvduals that the ntal ncdence of clmate change mtgaton costs wll be felt n a varety of dfferent ways, accordng to how the polcy s mplemented. Domestc costs are experenced through four dfferent payment vehcles: decreases n nvestment returns, and ncreases n consumer prces, ncome taxes, and energy taxes. The cost shares experenced va each payment vehcle are randomzed n 5% ncrements over the range from 1% to 7%, subject to the constrant that they sum to 1%. The nternatonal costs of clmate change mtgaton, explaned separately to respondents, are shared across four subsets of the world s countres: US and Japan, other ndustralzed countres, Inda and Chna, and other developng countres. Internatonal costs for other countres are not borne by domestc households. Domestc costs are thus assumed to be vewed by respondents as one component of a more-or-less coordnated nternatonal clmate polcy. Each group of countres needs to bear a certan percentage of the overall global cost. Internatonal cost shares across country groups also range from 1% to 7% and are completely randomzed. 2 D. Concern about clmate change Indvduals stated levels of concern about clmate change may play an mportant role n ther wllngness to ncur the costs of preventon. Respondents were asked to rate ther personal prorty levels for eleven randomly ordered ssues whch are lkely to be of global concern. These 19 Onlne Appendx Fgure A.4 gves one example of the survey s dynamcally generated two-alternatve choce scenaro and Fgure A.5 shows one three-alternatve choce scenaro. 2 L et al. (24) address the nternatonal sharng of clmate change mtgaton costs n the Kyoto Protocol. 12

15 ssues ncluded preventng clmate change, mprovng food safety, preventng wars, reducng poverty and hunger, etc. 21 In the most-extensve elctaton format, the prorty levels the ndvdual could assgn ncluded very hgh prorty, hgh prorty, moderate prorty, low prorty, not a prorty at all and not sure. Collected pror to the ndvduals stated preferences over clmate polcy, ths nformaton reveals respondents lkely baselne level of concern about clmate change n the context of a wder lst of other problems faced by socety. 22 The socodemographc questons at the very end of the survey also asked whether the respondent belonged to any envronmental groups. III. Estmatng Specfcaton Suppose respondent sees all three polcy alternatves: CM, PM, and BAU. 23 Ths respondent s antcpated ndrect utlty under polcy j (where j= CM, PM, or BAU) can be descrbed genercally as * j j j j j V (( Y C ), B, DC, IC ) (1) where ( Y C j ) denotes the choce-specfc net ncome (after any mtgaton costs) that the respondent s household wll enjoy under polcy j, and j B denotes the choce-specfc 21 One example of ths screen s contaned n Onlne Appendx Fgure A Other aspects of our onlne clmate survey have been used n several other analyses. Cameron and Gerdes (25) look exclusvely at the survey module desgned to elct ndvdual-specfc estmates of fnancal dscount rates usng ntertemporal choces. Cameron and Gerdes (26) combne the ntertemporal fnancal choce queston wth a queston about choces among rsky and rsk-free nvestments over a long tme horzon, to explore the ablty of estmated ndvdual dscount rate parameters and estmated ndvdual rsk averson parameters to shft clmate change preferences n an otherwse hghly smplfed model. Burghart et al. (27) explore a survey module concernng wllngness to dvert a hypothetcal tax credt nto research n ar condtoner technology, treated as an adaptaton to clmate change. Related work based on much smpler pretest versons of the survey, and a much smaller sngle-campus sample, has been publshed as Cameron (25) and Cameron (25). 23 Indvduals who selected the would not vote opton are excluded from our analyss. A more thorough analyss, desgned to assess WTP for clmate change mtgaton n a more-representatve sample (as opposed to the potental mpact of the mx of payment vehcles) would requre a more-complex econometrc specfcaton to accommodate ths addtonal type of response to the choce queston. 13

16 subjectve expected benefts (equal to avoded clmate change mpacts). We assume that ndrect utlty s ncreasng n both net ncome and clmate change mtgaton benefts. The remanng terms n equaton (1) depart from the smplest possble specfcaton by allowng other attrbutes of each polcy, not just the cost and avoded clmate change mpacts, to affect the utlty to be derved from that polcy. Clmate change mtgaton s a publc good, provded n a fxed amount (.e. one unt ) for everyone, and the attrbutes of the polcy can be allowed to shft the margnal utlty assocated wth that fxed amount of the publc good. The frst argument of equaton (1) s the effect of the polcy on net ncome, but all of the remanng varables are attrbutes of the polcy tself, mplctly nteracted wth an ndcator for polcy j. The varables j DC h (h=1, 2, 3, 4) capture the choce scenaro s stated ntal ncdence of domestc costs under polcy j (measured by the cost shares borne va each of the four dfferent payment vehcles, so that 4 DC 1 h= j h = 1). The varables IC (g=1, 2, 3, 4) capture the nternatonal j g dstrbuton of clmate change mtgaton costs (measured by the stated cost shares borne by each of the four groups of countres, so that 4 j ICg = 1). 24 g= 1 The noton that responsblty for the costs of mtgaton should resde wth the partes who create that polluton s typcally called the polluter-pays prncple. In addton to the absolute nternatonal shares borne by each group of countres, t s possble that respondents react to the extent to whch the proposed nternatonal dstrbuton of costs matches the dstrbuton of greenhouse gas emssons by these countres. In 2, the year prevous to our survey, the approxmate shares of carbon doxde emssons were: Inda and Chna (17%), other 24 Snce each set of shares wll sum to unty, care must be taken to preclude perfect multcollnearty by droppng one share when necessary. 14

17 developng countres (3%), US and Japan (31%), other ndustralzed countres (22%). 25 We requre an ndex that measures the extent of the departure of a partcular nternatonal cost share dstrbuton from ths nternatonal dstrbuton of emssons. One canddate measure can be 2 constructed usng a formula analogous to that for a χ test statstc for dfferences n proportons. Let PP g be the share of costs for country group g f costs were apportoned on the bass of polluter-pays. Let j IC g be the cost share borne by country group g under polcy j proposed n the choce scenaro offered to ndvdual. We use the formula 4 g= 1 j 2 ( IC PP PP ) g g g (2) to summarze the extent of departure from polluter-pays for the nternatonal dstrbuton of clmate polcy costs. Ths ndex has a value of zero f the nternatonal dstrbuton of costs matches polluter-pays. As the departure from ths dstrbuton ncreases, ths ndex wll take on larger and larger values. The expresson n equaton (2) becomes an addtonal attrbute for each polcy, wth an assocated margnal utlty. If respondents feel that adherence to the polluter-pays prncple s desrable, utlty from a polcy wll declne as ths ndex gets larger. 26 The polcy preference queston presented to respondents s ether a two-way or a three-way choce, so a utlty-theoretc dscrete choce econometrc specfcaton s approprate. Hence, we use a condtonal logt model, n combnaton wth respondents stated clmate polcy preference, to estmate the parameters of a specfc verson of the ndrect utlty functon n (1). We partton ths ndrect utlty nto a systematc porton and an unobservable (to the researcher) component: V = V + ε. We model the systematc porton of utlty as a lnear-n-parameters functon of * j j j 25 Based on nformaton avalable at Respondents were not gven ths nformaton n the survey. 26 We have consdered alternatve specfcatons whch use the mean absolute devaton nstead. The results are qualtatvely the same. 15

18 the respondent s antcpated crcumstances under each polcy alternatve. Under CM, the ndvdual wll bear costs C and enjoy avoded clmate change mpacts (benefts) B CM CM, but wll also experence the stated domestc and nternatonal cost dstrbutons assocated wth ths polcy: V Y C att DC att IC * CM CM CM CM = α( ) + θh + θhm m h + θg + θgn n g h= 1 m= 1 g= 1 n= 1 + θ + θ + β + β 2 4 CM ICg PP g B CM p patt p ( 1Z 11attb ) B g= 1 PPg A CM + ( β Z ) 1( Any Program) + ( γz ) 1( Partal Mtgaton) 2 + ε P CM CM (3) The att m varables measure respondents atttudes concernng the responsblty for each of an expanded lst of m = 1, 6 categores of domestc payers. The att varables are analogous, but they nstead record respondents atttudes concernng the responsblty over each of an expanded n lst of n = 1, 2, 3 6 nternatonal country groups. The varable att p s a sngle varable, for the 7 th opnon about nternatonal shares, namely whether countres should be held responsble n proporton to ther contrbuton to the problem. The respondent s ndvdual subjectve benefts of CM, CM B, consst of the clmate change mpacts whch would be avoded f CM s pursued namely, the dfference between the (roughly) CM BAU zero mpact under the polcy, and the BAU mpacts wthout t: B = ( IMPACTS ). Pror to the polcy choce scenaro, the potental BAU mpacts have been rated by each respondent. One expects that utlty, and hence wllngness to pay for clmate change mtgaton, should be hgher when greater negatve mpacts are expected n the absence of the polcy. Thus we use the negatve of our measures of mpact severty under BAU as our measure of the polcy benefts. Note that the margnal utlty of explct benefts, B, s allowed to vary across ndvduals j 16

19 accordng to a vector of ndvdual characterstcs B Z. The specfcaton n (3) also ncludes alternatve-specfc dummy varables: 1( AnyProgram s an ndcator varable that s swtched on for both the CM and PM alternatves; 1( Partal Mtgaton ) j s an ndcator that s unque to the PM alternatve. In addton, we employ another ndcator varable, 1( Saw Partal Mtgaton alternatve ) j, actvated for cases where the ndvdual sees a three-alternatve choce set that ncludes the PM alternatve. Ths shfter s allowed to nfluence all of the basc parameters n our models. To keep the exposton smple as we descrbe the basc characterstcs of our model, we suppress these nteracton terms. However, they are ncluded n the actual estmatng specfcaton, and ther coeffcents are reported n our tables of results. For our upcomng calculatons of wllngness to pay, we wsh to focus on the case where respondents are gven a choce only between CM and BAU, so we treat the 1( Partal Mtgaton ) j and 1( Saw Partal Mtgaton alternatve ) j ndcators as ncdental varables whose only role s to accommodate the subset of the data for whch respondents were offered an ntermedate alternatve at lower cost. For the case of a choce between CM and BAU, CM we have 1( Any Program ) = 1 and 1( Saw Partal Mtgaton alternatve ) CM = 1( Partal Mtgaton ) CM = for all respondents. Any unspecfed mplct benefts assocated wth ether PM or CM, captured by the ndcator 1( Any Program ) CM ) j, are also permtted to confer dfferng amounts of utlty accordng to a vector of ndvdual characterstcs, A Z. Analogously, under the PM alternatve, ndrect utlty s gven by: 17

20 V Y C att DC att IC * PM PM PM PM = α( ) + θh + θhm m h + θg + θgn n g h= 1 m= 1 g= 1 n= 1 + θ + θ + β + β 2 4 PM ICg PP g B PM p patt p ( 1Z 11attb ) B g= 1 PPg A PM + ( β Z ) 1( Any Program) + ( γz ) 1( Partal Mtgaton) 2 + ε P PM PM (4) The PM alternatve, when offered, s characterzed by dfferent costs and dfferent cost dstrbutons, although the atttudes ( attm and att n ) whch are allowed to shft the margnal utltes on the cost shares wll be assumed to be the same. The benefts from PM wll be less snce the full clmate change mpacts that the ndvdual expects, under a polcy of BAU, are only partally avoded. Thus the benefts under PM, PM B, consst of a randomly assgned reducton (rather than an elmnaton) of the respondent s expected clmate change mpacts under BAU. 27 Fnally, under the status quo alternatve (BAU), there are no mtgaton costs. Thus, there are no concerns about the dstrbuton of these costs, ether domestcally or nternatonally. So C =, whch means that the cost shares (mplctly nteracted wth a dummy varable for the BAU presence of mtgaton costs) are zero. Lkewse, there are no benefts (.e. no mpact BAU reductons ) so B = for the explct benefts. Only the net ncome term remans relevant, so that V = α( Y) + ε (5) * BAU BAU For random utlty models (RUMs), t s customary to desgnate a numerare alternatve (here, the BAU alternatve). Indrect utlty-dfferences for each alternatve, relatve to ths 27 As our benefts measure, we use the dfference between the smaller (negatve) mpacts under PM and the larger (negatve) mpacts under BAU: B PM ( PM BAU = IMPACTS IMPACTS ). Snce the mpacts under BAU wll be greater, the resultng measure wll be a postve amount of mpact reducton. 18

21 numerare, are assumed to drve the respondent s choce among the avalable alternatves. Here, we have ( ) V = V V * CM * CM * BAU = α( C ) + θ + θ att DC + θ + θ att IC CM CM CM h hm m h g gn n g h= 1 m= 1 g= 1 n= 1 + θ + θ + β + β 2 4 CM ICg PP g B CM p patt p ( 1Z 11attb ) B g= 1 PPg ( ) + ( β Z ) (1) + ( γ Z ) () + ε ε A P CM BAU 2 2 (6) There wll be an analogous ndrect utlty-dfference for the PM alternatve, sutably adjusted, whenever t s present. For the BAU alternatve, of course, ths ndrect utlty-dfference s smply zero. To estmate the basc margnal utlty parameters for ths model, as well as the shft coeffcents for these parameters, one normally constructs one row of data for each alternatve facng each ndvdual. Varaton across ndvduals, and across alternatves for each ndvdual, n the varables n the utlty dfference (.e. equaton (6)) permts these margnal utlty and shft coeffcents to be estmated. We can represent the systematc portons of these ndrect utlty-dfferences genercally as δ ' j W, snce they are lnear-n-parameters. The condtonal logt probabltes assocated wth choosng each alternatve can then be expressed as: P CM exp( δ ' W ) = exp( δ ' W ) + exp( δ ' W ) + 1 CM CM PM P PM exp( δ ' W ) = exp( δ ' W ) + exp( δ ' W ) + 1 PM CM PM P 1 = exp( δ ' W ) + exp( δ ' W ) + 1 BAU CM PM (7) The log-lkelhood functon to be maxmzed wth respect to the unknown parameters s then 19

22 log L = N y CM log( CM ) PM log( PM ) BAU log( BAU ) 1 P + y P + y P = (8) Where the j y ndcators take on the value of 1 f alternatve j s chosen and zero otherwse. The three sets of nteracton terms n our specfcaton: PM j ICg PP j g θhmattm DCh, θgnattn ICg, and θpatt p h= 1 m= 1 g= 1 n= 1 g= 1 PPg (9) bear the coeffcent vectors θ hm, θ gn, and θ p that allow us to assess the theoretcal construct valdty of the dstrbutonal preferences over polcy costs suggested by our utlty parameter estmates. We postulate that people have a hgher utlty when the cost share borne va ther more-preferred payment vehcle s hgher, and lower utlty otherwse, and those who subscrbe to the prncple of polluter-pays should derve greater utlty from polces that conform more closely to ths prncple. B j A j The key benefts-related terms ( β 1 Z + β 11 attb ) B and ( β 2Z ) 1( Any Program) provde addtonal theoretcal construct valdty tests. We expect people who dffer n ther levels of concern about specfc mpacts of clmate change may derve dfferent levels of utlty from the proposed polces. People who dentfy the problem of clmate change as a hgh prorty, or who are hghly nformed about envronmental ssues, mght be expected to derve dfferent levels of utlty from polces wth dfferent levels of subjectve or stated benefts. More-general heterogenety n clmate polcy preferences may be captured, as usual, by varables such as gender, poltcal deology, or exstng membershp n envronmental organzatons. As part of the expermental desgn of our survey, dfferent respondents were offered between two and fve response optons n the atttude elctaton questons concernng who should bear the 2

23 costs of preventng clmate change. 28 A neutral opton s not offered n all versons of the survey nstrument, so we cannot desgnate ths as the omtted category n our specfcatons. The neutral category, when t s avalable, can be aggregated wth the agrees or dsagrees responses. It s sometmes the dstncton between agrees and the omtted category of does not agree that matters (that s, we defne att = 1( Agree) = 1 f the respondent explctly agrees hm and ths ndcator s zero otherwse). In other cases, the dstncton between dsagrees and does not dsagree does a better job of explanng the data (where we defne hm att hm = 1( Dsagree) = 1 f the respondent explctly dsagrees and ths alternatve ndcator s hm zero otherwse). The descrptve statstcs for the randomzed choce scenaro varables employed n our models are reported n the top panel of Table 1, whch summarzes the range of values used for the costs of the clmate change mtgaton programs and the domestc and nternatonal dstrbutons of program costs. 29 Multcollnearty among some of the atttudnal varables poses a challenge for models whch employ the whole set of atttudes about all potentally responsble groups to shft the coeffcents on each domestc cost share or nternatonal cost share. Rather than ncludng the unverse of potental payers n each category (from the atttude questons about responsblty) as shfters on every cost share n the correspondng category n the polcy 28 Two-alternatve versons offered only agree and dsagree ; three-alternatve versons ncluded neutral ; four-alternatve versons dropped neutral but added agree strongly and dsagree strongly ; fnally, the fve-alternatve versons renstated the neutral opton. To smplfy our analyss, we combne the strongly dsagree and dsagree categores (and lkewse for strongly agree and agree ). 29 Ths verson of the paper ncludes descrptve statstcs for more varables than are ultmately found to have statstcally sgnfcant effects wthn our model. These summary statstcs are provded for completeness. Where other varables n a class have been found to have estmated coeffcent whch are never remotely sgnfcantly dfferent from zero, ther coeffcents have been set to zero n these models. 21

24 choce models, we smplfy our model by matchng each type of cost share to atttudes concernng the responsblty of the most closely related group or groups. 3 In the most general possble model, the potental benefts of each polcy ( B ) should comprse all fve avalable categores of antcpated mpacts, ncludng Agrculture & Water, Oceans & Weather, Human Health, Ecosystems, and Equty. In our data, however, nearly seventy percent of the respondents rated the Human Health mpacts under BAU as -4, and about the same percentage of ths college sample rated the Oceans & Weather mpacts as -4 (see Onlne Appendx Table B.1). Our data on ndvdual subjectve clmate change mpacts are merely ratngs on a symmetrc scale that runs from negatve to postve. Wth subjectve ratngs, t s never clear whch cardnal scales dfferent ndvduals may be usng. Thus we convert the raw ratngs from the survey nto a set of two coarse dummy varables for each type of mpact: 1(Moderate) sgnfes a ratng from less than zero to -2 (nclusve); 1(Severe) s a ratng from less than -2 to -4 (nclusve). The omtted category no negatve mpact. Wth ths level of aggregaton, vrtually 99% of respondents n ths mostly student sample rated both the Human Health and Oceans & Weather mpacts as severe. As a result, we cannot estmate dstnct margnal utltes assocated wth these two categores of mpacts for ths sample. Instead, we use the alternatve-specfc ndcator varable 1( Any Program ) j, shared by both the CM and PM alternatves to dentfy the common autonomous component of utlty from any of these programs, as well as the ndcator 1( Partal Mtgaton ) j, actvated only for the PM opton (when t s offered). j 3 Onlne Appendx Fgure B.1 descrbes the way n whch we elect to match the domestc varables for theoretcal construct valdty assessment, and Fgure B.2 explans the strategy for the nternatonal varables. The nteracton terms between the cost share of a payment vehcle and the respondent s atttudes toward the responsblty of that same type of payer thus consttute our workng set of theoretcal construct valdty assessment varables (or, equvalently, our dstrbutonal preference varables). 22

25 The more-varable subjectve mpacts for Agrculture & Water and for Ecosystems are also rather hghly correlated. (See the degree of correlaton n the detaled ratngs for these two types of mpacts n Onlne Appendx Table B.2.) 31 We opt to subsume the Agrculture & Water mpacts to a consderable extent under the Ecosystems mpacts, and to use only Ecosystems mpacts and Equty mpacts as our explct benefts varables. The utlty from any uncorrelated components of the other three types of mpacts wll be absorbed by 1(Any Program) and 1(Partal Mtgaton), whch capture the autonomous utlty from takng acton aganst clmate change, regardless of the explct costs or benefts used n our model. IV. Estmaton Results Table 2 reports results for three dfferent specfcatons. The frst model assumes homogeneous preferences, the second allows the estmated preference parameters to dffer systematcally wth a varety of the respondent s atttudes about the responsbltes of dfferent partes to bear the costs of clmate change mtgaton, and wth ther stated concern about the adverse dstrbutonal consequences of clmate change f t s allowed to happen. Several other types of heterogenety are also entertaned n ths model. Fnally, a thrd model pares down the heterogeneous-preferences model to ts essentals. After dscussng our preferred parsmonous specfcaton, we devote a bref subsecton to commentary on the consequences of other modelng strateges we have explored wth these data. 31 To accommodate these collneartes, we have explored models whch rotate through a set of three basc models. In each specfcaton, we feature just one of these three types of mpacts. In each model, we acknowledge that the estmated margnal utltes on the featured mpact wll subsume the covaryng portons of other correlated mpacts, whle the common effects wll be absorbed by the alternatve-specfc dummy varables. Whle t would have been appealng to be able to dentfy clearly the dstnct effects of each type of mpact, t s not really possble to do so wth these data. However, weght-of-the-evdence nferences can stll be deduced from these more-aggregated versons of the dfferent subjectve mpacts. 23