Multi-Metric Indicator Use in Social Preference Elicitation and ValuationPatrick Fogarty

UW-WhitewaterEconomics Student

Multi-Metric Indicators

Indicator

Component 1

… …

Component 2

… …

Component 3

… …

Fuel Index

Environmental Damage

Disruption of Ecosystems

Decline of Species

Human Health Impacts

Infectious Diseases

Cardiovascular and

respiratory Diseases

Other Impacts

Natural Resource Use

Cost of Extracting Resources

Loss of Resources

Other Examples of Indicators GDP

Education Expenditure

Theories Indicators can serve as a generalized

measurement of a complicated system of relationships that can help people be more informed.

Indicators are too complicated and abstract for the average person to fully understand.

Cognitive Burden vs. Usefulness

Low Cognitive Burden

High Cognitive Burden

Not Useful Very UsefulGoal of IndicatorsWhat w

e Get?

My Questions 1. Does the average person understand

what a change in a multi-metric indicator represents?

2. Should indicators be seen as an effective informative tool in preference elicitation?

Literature Review Johnston et al. (Land Economics, 2012) Johnston et al. (Ecological Economics,

2011) Orians and Policansky, (Annual Review

of Environment and Resources, 2009) Key National Indicators Act of 2010

The State of the USA

Method Expand on previous work that valued

people’s preferences of three indicators representing externalities of transportation fuel (Winden, 2014)

Determine the value for a change in an indicator that aggregates the three components above.

Compare results to test respondents’ preference consistency

Data set Internet survey conducted by

Knowledge Networks on transportation fuel preferences from 2009.

430 responses

Survey Participant Criteria

Be an adult resident of Ohio state, Be able to provide an estimate of the

mileage per gallon of their day to day vehicle,

Provide the amount of money they paid per gallon the last time they filled up their day to day vehicle,

Answer questions about the meaning of the index correctly.

The Indicators Developed using Eco-indicator 99 Summarization of three impacts of the production and

consumption of the fuel mix into one number; Environmental damage Natural Resource use Health impacts

Can take on a value from 0 to 100 The higher the number…

the more damage to the environment An increased strain on natural resources The higher the risk of harmful effects on human health

Fuel Index

Environmental Damage

Disruption of Ecosystems

Decline of Species

Human Health Impacts

Infectious Diseases

Cardiovascular and

respiratory Diseases

Other Impacts

Natural Resource Use

Cost of Extracting Resources

Loss of Resources

Current Fuel Mix New Fuel Mix0

20

40

60

80

100

55

69

Fuel Index

Assuming that you will be driving the same vehicle you currently use for your day to day driving, if the new fuel mix were available, would you prefer the new fuel mix over the current fuel mix given that the Fuel Index increases from 55 to 69 and Fuel Prices decrease by 5% from $2.00 to $1.90 per gallon?

Enivronmental Damage

Natural Resource

Use

Human Health Risk

0

20

40

60

80

100

50 50 50Current Fuel

Mix

$Original Price per Gallon

Enivronmen-tal Damage

Natural Resource

Use

Human Health Risk

0

20

40

60

80

100

4550 50

Fuel Mix A

$New Price per Gallon

Enivronmental Damage

Natural Resource

Use

Human Health Risk

0

20

40

60

80

100

62.5

37.5

50

Fuel Mix B

$New Priceper Gallon

Assuming you are driving the same vehicle that you currently drive, and the expected fuel mileage does not change, which Fuel Mix would you prefer? I would prefer Current

Fuel Mix I would prefer Fuel Mix

A I would prefer Fuel Mix

B

Random Utility Model

Where represents the indirect utility of 𝑢respondent i with the j-th alternative, is a 𝑥vector of attributes of choice, M is discretionary income, is the price of the alternative and is unobserved preferences 𝜀known to the individual.

Mixed Logit

Variables Dependent

Choice: 0 if the person preferred the status quo; 1 if the person preferred the alternative

Independent Price – The price per gallon of the fuel

alternative. Index – A rating (0 being low, 100 being

high) of how damaging the fuel alternative is to the environment, human health, and natural resources.

Descriptive Statistics – Fuel Index variables

Variable N MeanStandard Deviation Min Max Skewness

Choice 860 0.5 0.5 0 1 0

Fuel Price 860 1.887 0.23 1 3.29 2.307

Fuel Index Rating 860 49.653 8.083 33.75 68.75 0.275

Results – Mixed Logit

Choice Coefficient

Variable(Standard Error)

Fuel Price -3.124**

(1.268)

Fuel Index Ratings -0.079***

(0.02)*,**,*** significance at the 10, 5, and 1%

level, respectively

Marginal Willingness to Pay

Comparison

Fuel Index: 2.5¢

Environmental Damage:

2.9¢

Human Health

Effects: 3.4¢

Natural Resource Use: 2.2¢

Environmental Damage - 2.9 Human Health Impact - 3.4 Natural Resource Use - 2.2

Weigting System Weight Value Weight Value Weight Value Marginal WTP

Equal 33% $ 0.010 33% $ 0.011 33% $ 0.007 $ 0.028

Estimated 34% $ 0.010 40% $ 0.014 26% $ 0.006 $ 0.029

Individualistic 25% $ 0.007 55% $ 0.019 20% $ 0.004 $ 0.030

Egalitarian 50% $ 0.015 30% $ 0.010 20% $ 0.004 $ 0.029

Hierarchist 40% $ 0.012 30% $ 0.010 30% $ 0.007 $ 0.028

Fuel Index Marginal WTP = $0.025