Cheap Talk and WTP Question

Inadequate provision of information to the interviewees was avoided by providing clear, neutral and specific information aimed at reducing the use of subjective perceptions by respondents (Bateman et al., 2002). The hypothetical nature of a CV survey lends itself to some participants stating that they would pay for the service, when in reality they would not, or pay less, if placed in an actual purchase situation. In order to mitigate this potential hypothetical bias, cheap talk is one of the most frequently used methods. This instrument informs participants of the tendency to overestimate their WTP and asks them to complete the valuation task as if the payment was real (Cummings and Taylor, 1999; Mahieu et al., 2012). The cheap talk utilised has been loosely translated from Spanish, it includes bold text that the interviewer was asked to make emphasis on, and reads:

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“As the majority of people that use the water in this area will have to cover the cost of the payment for ecosystem services, we are using this survey to ask you if you would accept to pay if you had the opportunity. We have found that some people would be in favour of it and others against it.

Sometimes people say they are in favour of the scheme in order to please the interviewer or for some other reason, but they can’t really afford it. Some people are against the payment because they need the money for other things that are more important to them, like clothes or food. And some people say that the money they would have to pay is more than they can pay. Before answering, please think carefully about your financial capacity. No answer is right or wrong and I don’t have a preference for any answer. I remind you that you can obtain drinking water from other sources, such as bottled water.

This payment for ecosystem services scheme proposal is not real at this moment. No one is paying money at the end of this survey. However, I ask you to answer the following questions as if the result would involve a real monetary payment from you. Please, only agree to pay according to what you can afford to pay. This payment will ensure that your home and the rest of the communities receive clean drinking water quality all the time. For the payment to be implemented it is necessary that 80% of water users agree to pay”.

Value elicitation was done through a referendum vote format, which has incentive compatibility, i.e. truthful and accurate responses, as is recommended by the literature (e.g. Arrow and Solow, 1993). The CV survey had a double bounded question format but due to the second question’s ineffectiveness at eliciting an upper of lower bound, only the first question, which is unaffected by the response to the second question, was utilised in the analysis. Furthermore, the WTP question asks about a PES scheme to improve drinking water quality, not specifying the exact improvement level. However, during pre-testing and the actual surveying it was clear that respondents understood that the improvement of water quality was to a potable level. Also, it is clearly stated in the cheap talk, “clean drinking water all the

time”, which means water at a potable level. The question stated the bid amount in

a monthly and a yearly format to account for communities that paid their water bill monthly and those that paid annually. Thus, the dichotomous or discrete choice WTP question was (loosely translated from Spanish):

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“If the implementation of this scheme to improve drinking water quality would cost your home, from now onwards, # Lempiras [of increase in your water bill] every month, which equals # Lempiras per year, would you agree to pay?”

While dichotomous choice type questions are the most common response format, they still have weaknesses despite their potential incentive compatibility. First, answers to dichotomous choice questions only indicate whether a respondent’s value lies below or above the bid threshold. Other weaknesses include anchoring of bids, yea saying and voting like good citizens. Still, a dichotomous choice format is the best that can be done as trade-offs are always to be made (Brown, 2003). Overall, these weaknesses were controlled for in the study by preceding the WTP question by a detailed and neutral scenario description, a cheap talk design highlighting the reasons respondents could have for answering yes or no, and a decision rule explaining minimum beneficiary participation required for a PES scheme.

The incentive compatibility of the WTP question was further enhanced by a decision rule, included in the cheap talk, in which at least 80% of respondents were required to answer yes to the WTP question in order for the PES scheme to be implemented. The decision rule is based on a majority proportion to highlight that if most respondents are WTP, then the PES scheme could be implemented. This rule is the mechanism used to determine if enough people would vote in favour of the scheme and as a measure to reduce hypothetical bias by emphasising that the scheme could be implemented (Vossler and McKee, 2006; Schläpfer and Bräuer, 2007; Moore et al., 2013).

A test of validity asks whether a CV study accurately measures the value it is designed to measure (Brown, 2003). The literature describes three approaches to assess the validity of a measure: criterion, construct and content validity. Criterion validity compares CV estimates to a measurement that is external to the CV study or to a behaviourally-based measure that directly represents the construct under investigation. This is considered the surest way to assess the validity of a stated

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preference measure. Content validity asks whether the elements in the design of the CV survey and data analyses are consistent with economic theory, established practice, and the valuation objective. Convergent or construct validity investigates the consistency of CV estimates with estimates provided by another nonmarket valuation method (Brown, 2003).

In order to ensure content validity, the survey instrument was robustly designed following the literature on the CV method and established practice. First, the survey included all the sections recommended by established practice. Second, focus groups and ample pre-testing were carried out to ensure the survey was meaningful to respondents, that the payment vehicle was reasonable and to set the bid values realistically. Third, population size of water beneficiaries was carefully determined and sampling was done at random considering all beneficiary households. Fourth, the description of the service and its institutional setting were designed considering the respondents’ level of education and understanding. Fifth, the statistical model is appropriate for the CV survey design. The criterion and convergent validity are covered in chapter 7 by comparing the stated and the revealed WTP estimates.