This chapter looks at the whether behavioral economics can be used by policy-makers to help people make better choices. It illustrates the importance of institutions, this will take us into the world of practical policy design and intervention. The chapter shows that institutions can be of two basic kinds: formal institutions, such as markets, and informal institutions, such as social norms. In recent years there has been much excitement that behavioral economics can change the way in which policy is viewed when it comes to individual incentives. The opens up interesting new ways to think of economics and policy, informed by behavioral economics. The mindspace principles are designed to help policy-makers better understand how possible policies might change behavior; they are a kind of checklist of things to think about. The Institute for Government has come up with the idea of mindspace. In many instances …

Using choice experiment data for economic valuation we analyse how disbelief in survey information could affect the retrieved welfare estimates. We distinguish between two types of survey information to the respondents. The first type of information concerns the current environmental status of a water body. This information is provided prior to the valuation questions and the corresponding beliefs in the provided information are also elicited before valuation. The second type of information concerns the proposed improvements in the environmental status of the water body. We find that average welfare measures differ considerably according to whether respondents who disagree with the status quo levels and find proposed scenarios unlikely are included or not.

This paper investigates the nature of stated preferences for reducing air pollution impacts. Specifically a contingent valuation (CV) experiment is designed to elicit individuals’ values for reducing these impacts and to examine how these may change when multiple schemes for reducing differing impacts are valued. The novel survey design allows simultaneous testing for the presence of several anomalies reported in the CV literature within the same context, including (i) scope sensitivity (ii) part-whole or substitution effects (iii) ordering effects and (iv) visible choice set effects. Results indicate some scope sensitivity and interaction between ordering effects and visible choice set effects, as well as substantial part-whole or substitution effects between two exclusive schemes. A practical consequence of these findings is that estimates of the value of combined programmes may not readily be obtained by summing the values of their constituent parts obtained using the CV method.

This paper reports an ‘adversarial collaboration’—a project carried out by two individuals or research groups who, having proposed conflicting hypotheses, seek to resolve their dispute. It describes an experiment which investigates whether, when individuals consider giving up money in exchange for goods, they construe money outlays as losses or as foregone gains. This issue bears on the explanation of the widely observed disparity between willingness-to-pay (WTP) and willingness-to-accept (WTA) valuations of costs and benefits, which has proved problematic for contingent valuation studies. The results of the experiment are broadly consistent with the hypothesis that money outlays are perceived as losses.

This paper reports an exercise in adversarial collaboration. An adversarial collaboration is an investigation carried out jointly by two individuals or research groups who, having proposed conflicting hypotheses, seek to resolve the issue in dispute. The experiment reported was designed to reconcile differences between the apparently conflicting results of two previous experiments, one carried out by Kahneman, the other by the other authors. Specifically, it investigates whether, when consumers consider giving up money in exchange for goods, they construe potential money outlays as losses. This issue bears on the explanation of the widely observed disparity between willingness-to-pay and willingness-to-accept valuations of costs and benefits, which has proved so problematic for contingent valuation studies. The results of the experiment do not decisively resolve the question in dispute, but they are broadly consistent with the hypothesis that money outlays are perceived as losses.

Previous models to describe the desire for recreation at English forest sites have tended to use fairly crude and regional measures. This study demonstrates how forest recreation demand can be modelled quite locally and using just site-specific characteristics or simple measures of available population as input. A field survey of 33 Forestry Commission sites was made in order to collect data on attractive features at each site. These data were supplemented with variables to indicate the availability of competing woodlands and population totals within set travel distances. The outputs were simple but robust stand-alone functions to describe visits across many sites.

Recent years have seen an increasing policy requirement for cost-benefit analyses to incorporate monetary valuations of preferences regarding any environmental goods and services concerned. However, this increased demand for valuation studies has in turn imposed increased costs upon assessment systems and so raised interest in the transferability of benefit estimates across applications. A number of benefit transfer techniques have been developed and are reviewed in this paper. This review illustrates these varying approaches with a mixture of examples taken from the literature and new, previously unpublished, applications. The paper demonstrates the substantial theoretical and empirical problems raised by benefits transfer techniques and concludes by presenting a series of recommendations for improving the design, implementation and reporting of future valuation studies so as to enhance the feasibility of subsequent benefit transfer analyses.

Environmental economists usually pay little attention to inherently spatial aspects of much of their work. Such analyses also tend to suffer from considerable inefficiencies in data handling. This paper demonstrates how use of GIS and appreciation of the nature of spatial datasets can greatly facilitate natural resource valuation using the technique of travel cost analysis. This work forms the basis for tackling an important research topic in environmental economics: the feasibility of transferring benefits between studies. Using GIS allowed us to implement such transfer with greater ease, consistency, and recognition of the spatial aspects of study design and variable handling than is normally seen in such research.

Eight alternative methods of eliciting preferences between money and a consumption good are identified: two of these are standard willingness-to-accept and willingness-to-pay measures. These methods differ with respect to the reference point used and the dimension in which responses are expressed. The loss aversion hypothesis of Tversky and Kahneman's theory of reference-dependent preferences predicts systematic differences between the preferences elicited by these methods. These predictions are tested by eliciting individuals' preferences for two private consumption goods; the experimental design is incentive-compatible and controls for income and substitution effects. The theory's predictions are broadly confirmed.

The existence of part–whole bias has been hotly disputed in the recent contingent valuation literature. This paper reports on an experiment into part–whole bias. Employing vouchers for parts of a restaurant meal and using an incentive compatible procedure, valuations of the parts and of the whole were elicited. The sum of the valuations of the parts consistently exceeded that of the whole, providing evidence of the existence of part–whole bias in a context where traditional explanations would not have predicted it.

Tourism is regarded by many countries, particularly resource-poor countries, as a potential stimulus to the economy. Yet tourism, by the nature of the activities involved, is constrained by the natural resource base and infrastructure, and by the pollution and other environmental and social impacts of tourist numbers. Tourism development strategies of national governments have been diverse in the face of this complex relationship between the economic costs and benefits of tourism. This paper examines tourist development based on concepts of open access and renewable natural resources. The experiences of two economies highly dependent on tourism, the Maldives and Nepal, are compared and contrasted. Although these countries offer very different attractions to tourists, they are faced with similar problems in terms of adverse environmental impacts of tourism. The dominant impacts in both areas are those associated with solid waste disposal and water resources, compounded by the depletion of natural resources. Both countries are currently employing 'dispersal' techniques to overcome the adverse impacts of tourism, but such strategies do not address the fundamental problem of maintaining tourism revenues whilst minimizing environmental damage. Even if an ecological carrying capacity can be defined, the experiences of these two countries indicate that impacts on local communities may well exceed so-called cultural carrying capacity.