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Choice Experiment Method (CEM)• Choice Experiment Method (CEM) is a state of

the art method, which has been applied to economic valuation of environment recently, and the method is still in the process of being developed

• CEM is similar to CVM, as it a survey based, hypothetical method, which can be used to estimate economic values for virtually any environmental good and service, and can be used to estimate non-use as well as use values. 

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CEM-Overview

• However, it differs from contingent valuation because it does not directly ask people to state their valuation in monetary terms.  Instead, values are inferred from the hypothetical choices or tradeoffs that people make among many alternatives. 

• CEM is grounded in Lancaster’s characteristics theory of value (1966), which states that any good can be described in terms of its attributes and the levels these attributes take, and consumers purchase the attributes rather than the good itself

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CEM- Overview• In a CE respondent is presented with two or

more alternatives of the environmental good with different levels of its attributes at different prices and asked to choose their most preferred alternative in each set of alternatives.

• As long as one of the attributes of the good is price, it is possible to derive the WTP for changes in the levels of the good's other attributes.

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CEM-Overview

• CEM can estimate the TEV of an environmental good or service and the value of its attributes as well as the value of more complex changes in several attributes

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CEM-Overview

Choice Experiment 1.1 Which of the following three wetland management scenarios do you favour? Option A and option B would have a cost to your household. No payment would be required for option C, but the conditions at the wetland would continue to deteriorate. Option A

Option B Option C

Biodiversity OWSA Education and Research Extraction Number of locals re-trained One-off payment

Improve

Increase

Maintain current level

150

€ 40

Maintain current level

Increase

Increase

75

€ 40

Decline

Decline

Decline 0

€ 0

(Please tick as appropriate) I would choose: Option A Option B Option C

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CEM-Design: Step 1

• Because both CVM and CEM are hypothetical survey-based methods, their application is very similar.  The main differences are in the design of the valuation question(s), and the data analysis.

• The first step is to define the valuation problem.  This would include determining exactly what services are being valued, and who the relevant population is. 

 

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CEM-Design: Step 2

• The second step is to make preliminary decisions about the survey itself, including whether it will be conducted by mail, phone or in person, how large the sample size will be, who will be surveyed, and other related questions. 

• The answers will depend, among other things, on the importance of the valuation issue, the complexity of the question(s) being asked, and the size of the budget. 

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CEM-Design: Step 2• In-person interviews are generally the most

effective for complex questions, because it is often easier to explain the required background information to respondents in person, and people are more likely to complete a long survey when they are interviewed in person. 

• In some cases, visual aids such as videos or photographs may be presented to help respondents understand the conditions of the scenario(s) that they are being asked to value. 

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CEM-Design: Step 2

• In-person interviews are generally the most expensive type of survey.  However, mail surveys that follow procedures that aim to obtain high response rates can also be quite expensive. 

• Telephone surveys are generally not appropriate for CEM, because of the difficulty of conveying the trade-off questions to people over the telephone.

 

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CEM-Design: Step 3

• The next step is the actual survey design.  It is accomplished in several steps. 

• The survey design process usually starts with initial interviews and/or focus groups with the relevant population and also with experts and scientists who can help identify the important attributes of the environmental good/service and the levels the levels these can take under different scenarios.

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CEM-Design: Step 3• In the initial focus groups, the researchers would ask

general questions, including questions about peoples’ understanding of the issues related to the environmental good or service being valued, whether they are familiar with the good or service and what are the important attributes of the environmental good or service to the respondents.

• Researchers would ask questions to the scientists about to what level these attributes can be increased to when management or conservation actions are taken and to what levels they might fall to when deterioration/degradation of the environmental good or service continue or increase.

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CEM-Design: Step 3• In later focus groups, the questions would

get more detailed and specific, to help develop specific questions for the survey, as well as decide what kind of background information is needed and how to present it. 

• For example, people might need information on the location and characteristics of the good, its uniqueness and possible substitutes. 

 

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CEM-Design: Step 3• At this stage, the researchers would test

different approaches to the choice question.  • A CEM will ask each respondent a series of

choice questions, each presenting different combinations of the level of attributes of the environmental good or service at different cost to the respondent.

• These different combinations of the levels of the environmental good are used to describe different alternatives of the good, and these alternatives are put together in pairs or more in choice sets using experimental design theory.

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CEM-Design: Step 3• After a number of focus groups have been

conducted, and researchers have reached a point where they have an idea of how to provide background information, describe the hypothetical scenario, do the experimental design and ask the choice questions, they will start pre-testing the survey. 

• Researchers continue this process until they’ve developed a survey that researchers seem to understand and answer in a way that makes sense and reveals their values for the good.

 

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CEM-Design: Step 4

• The next step is the actual survey implementation. 

• The first task is to select the survey sample. 

• Ideally, the sample should be a randomly selected sample of the relevant population, using standard statistical sampling methods. 

 

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CEM-Design: Step 5

• The final step is to compile, analyse and report the results.

• The statistical analysis for CEM is often more complicated than that for CVM, requiring the use of discrete choice analysis methods to infer WTP from the tradeoffs made by respondents. 

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CEM-Design: Step 5• From the analysis, the researchers can

estimate the average value for each of the attributes of the good or service, for an individual or household in the sample. 

• This can be extrapolated to the relevant population in order to calculate the total benefits from the good/service under different policy scenarios. 

• The average value for a specific action and its outcomes can also be estimated, or the different policy options can simply be ranked in terms of peoples’ preferences.

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CEM-Application

• When applying CEM the following points should be taken into consideration:

• Before designing the survey, learn as much as possible about how people think about the good or service in question. 

• Consider people’s familiarity with the good or service, as well as the importance of such factors as quality, quantity, accessibility, the availability of substitutes, and the reversibility of the change.

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CEM-Application• Determine the extent of the affected

populations in question, and choose the survey sample based on the appropriate population.

• The choice scenario must provide an accurate and clear description of the change in  environmental good or service associated with the event, program, investment, or policy choice under consideration. 

• If possible, convey this information using photographs, videos, or other multi-media techniques, as well as written and verbal descriptions.

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CEM-Application• The nature of the good and the changes to be

valued must be specified in detail.   • The respondent must believe that if the money

was paid, whoever was collecting it could effect the specified environmental change.

• Respondents should be reminded to consider their budget constraints.

• Specify whether comparable services are available from other sources, when the good is going to be provided, and whether the losses or gains are temporary or permanent.

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CEM-Application

• Respondents should understand the frequency of payments required, for example monthly or annually, and whether or not the payments will be required over a long period of time in order to maintain the quantity or quality change. 

• Respondents should also understand who would have access to the good and who else will pay for it, if it is provided.

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CEM-Application

• The scenario should clearly indicate whether the levels being valued are improvements over the status quo, or potential declines in the absence of sufficient payments.

• If the household is the unit of analysis, the reference income should be the household’s, rather than the respondent’s, income. 

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CEM-Application

• Thoroughly pre-test the questionnaire for potential biases.

• Pre-testing includes testing different ways of asking the same question, testing whether the question is sensitive to changes in the description of the good or service being valued, and conducting post-survey interviews to determine whether respondents are stating their values as expected. 

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CEM-Application

• Interview a large, clearly defined, representative sample of the affected population.

• Achieve a high response rate and a mix of respondents that represents the population.

• The survey results should be analysed using discrete choice models.

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CEM-Advantages

• The CEM can be used to estimate TEV of any environmental good or service as a whole, as well as the various attributes and complex changes in the attributes of the good or service.

• The method allows respondents to think in terms of tradeoffs, which may be easier than directly expressing money values.

• The tradeoff process may encourage respondent introspection and make it easier to check for consistency of responses. 

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CEM-Advantages

• In addition, respondents may be able to give more meaningful answers to questions about their behaviour (i.e. they prefer one alternative over another), than to questions that ask them directly about the money value of a good or service or the value of changes in environmental quality. 

• Thus, an advantage of CEM over the CVM is that it does not ask the respondent to make a tradeoff directly between environmental quality and money.

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CEM-Advantages• Respondents are generally more comfortable

providing their choice of attribute bundles that include prices, rather than money valuation of the same bundles without prices, by de-emphasizing price as simply another attribute.

• Survey methods may be better at estimating relative values than absolute values.  Thus, even if the absolute monetary values estimated are not precise, the relative values or priorities elicited by a CEM are likely to be valid and useful for policy decisions.

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CEM-Advantages

• The method minimizes many of the biases that can arise in open-ended CV where respondents are presented with the unfamiliar and often unrealistic task of putting prices on non-market amenities.

• The method has the potential to reduce problems such as expressions of strategic values, protest bids, embedding effects, and yea-saying bias associated with CVM. 

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CEM-Limitations• Respondents may find some tradeoffs

difficult to evaluate, because they are unfamiliar.

• The respondents’ behaviour underlying the results of a CEM is not well understood.  Respondents may resort to simplified decision rules if the choices are too complicated, which can bias the results of the statistical analysis.

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CEM-Limitations

• If the number of attributes or levels of attributes is increased, the sample size and/or number of comparisons each respondent makes must be increased.

• When presented with a large number of tradeoff questions, respondents may lose interest or become frustrated.

• By only providing a limited number of options, it may force respondents to make choices that they would not voluntarily make.

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CEM-Example • Valuation of agricultural biodiversity in

Hungarian home gardens

• Agricultural biodiversity encompasses the variety and variability of animals, plants and microorganisms and production methods used directly or indirectly for food and agriculture

• It is a public good (as it is not sold in the markets) whose benefits accrue to the farmers at large

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CEM-Example

• Agri-environmental policies being developed in the country to encourage farmers to provide the society with public goods that can be provided through agricultural production (e.g. agricultural biodiversity, landscape management) by giving them subsidies

• Need information on which farmers (their characteristics an locations) value that agricultural biodiversity in their home gardens the most, since those that attach high private values to agricultural biodiversity would be willing to supply the public good at the least cost (subsidy)

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CEM-Example• Through focus groups with farmers and

agricultural scientists, important attributes of the agricultural biodiversity in Hungarian home gardens and their levels are identified to be

1. Crop variety diversity (number of different crop species and varieties): 6,13,20,25

2. Landrace (crop genetic diversity): 0,1 3. Agro-diversity (integrated livestock and crop

production): 0,1 4. Organic production (soil micro-organism diversity): 0,15. Food self-sufficiency generated by the home garden:

15%, 45%, 60%, 75%

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CEM-Example

• Experimental design theory is used to assemble these attributes and their levels into choice sets. 32 pair wise comparisons (Home garden A vs. Home garden B) with a neither option were blocked into 5 version and each respondent received 5-6 choice sets

• 277 randomly selected home garden cultivating farm households were interviewed in three distinct regions, in terms of agro-ecology, development level and income

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CEM-Example

Assuming that the following home gardens were the ONLY choices you have, which one would you

prefer to cultivate?

Home Garden Characteristics Home

Garden A

Home

Garden B

Total number of crop varieties grown in the

home garden

25

20

Home garden has a landrace No Yes

Crop production in the home garden is

integrated with livestock production

Yes

Yes

Home garden crops produced entirely with

organic methods

No

No

Expected proportion (in %) of annual

household food consumption met through

food production in the home garden

45

75

Neither home

garden A nor

home garden B:

I will NOT

cultivate a home

garden

I prefer to cultivate Home garden A….. Home garden B…. Neither home garden ……

(please check one option)

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CEM-Example

Attribute Dévaványa Őrség-Vendvidék Szatmár-Bereg Crop Species Diversity

-- -111 -141

Agro-diversity -404 -100 -198 Organic Production -235 -- -76 Landrace -- -95 -83

WTA estimates per home garden attributes per region (in €)

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CEM-Example• Valuation of home garden attributes for

selected household profiles

Characteristics HouseholdProfile 1

HouseholdProfile 2

HouseholdProfile 3

Number of householdmembers with off-farm jobs

2 0 1

Experience of home gardendecision-makers

20 50 40

% Household income spenton food

30% 50% 40%

Number of home gardenparticipants

3 2 5

Household also cultivates afield

No No Yes

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CEM-ExampleWTA values for Dévaványa for selected household profiles (in €) Attribute Profile 1 Profile 2 Profile 3 Crop Species Diversity +405 +408 +429 Agro-diversity -346 -391 -367 Organic Production -338 -107 -230 Landrace -19 -128 -71

WTA values for Őrség-Vendvidék for selected households profiles (in €) Attribute Profile 1 Profile 2 Profile 3 Crop Species Diversity -116 -92 -103 Agro-diversity -103 -88 -95 Organic Production -133 -39 -109 Landrace -55 -137 -99

WTA values for Szatmár-Bereg for selected household profiles (in €) Attribute Profile 1 Profile 2 Profile 3 Crop Species Diversity -134 -136 -286 Agro-diversity -64 -201 -530 Organic Production -42 -43 -89 Landrace -127 -138 -17

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CEM-Example

– Crop species diversity and landraces are most important in isolated regions of Szatmár-Bereg and Őrség-Vendvidék

– Agro-diversity is most important in Dévaványa, the region with industrialised agricultural production, and in Szatmár-Bereg with the agricultural household, reflecting the complementarity between livestock and crop production

– Organic Production is valued most highly by wealthiest households in Dévaványa and Őrség-Vendvidék and by the poorest and the most isolated households in Szatmár-Bereg

– Landraces are valued most highly by elderly, more experienced home garden decision-makers in each region

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CEM-Example• Home gardens have important agricultural

biodiversity values• There is insufficient assurance in continued

cultivation of home gardens in the future as economic environment in Hungary changes with EU membership and economic transition

• Inclusion of home gardens in agri-environmental programme (with farmer contract payments) is crucial for conservation of agricultural biodiversity and multifunctional agriculture values in Hungary

• Results from the choice experiment study can help design most efficient, least cost and equitable conservation programmes and policies