11. Measuring willingness to pay for climate change abatement Solutions

These are not model answers. They are provided to help students, including those doing the project outside a formal class, to check their progress while working through the questions using the Excel, R, or Google Sheets walk-throughs. There are also brief notes for the more interpretive questions. Students taking courses using Doing Economics should follow the guidance of their instructors.

Part 11.1 Summarizing the data

  1. Surveys rely on respondents’ subjective opinions, which are subject to biases. These biases may affect the two types of answers differently. Public awareness of climate change issues has increased significantly over the past few decades, and people may feel morally obligated to conform to social norms and value the environmental costs highly. As a result, for dichotomous choice (DC) surveys, respondents may be inclined to choose the maximum amount. For two-way payment ladder (TWPL) surveys, respondents may be inclined to report overly large values, shifting the distribution to the right and leading to large variations in reported values.

    There are many other sources of bias for the surveys. For example, the subset of the population that participates in the survey may not be representative of the population. The design of questionnaires may also affect responses. However, for the purpose of comparing the differences between survey types, these biases may not be as significant.

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  1. (a)(c) No solution is provided.
  • Solution figures 11.1, 11.2, and 11.3 provide solutions for all the indices. Values are rounded to two decimal places.
  exaggeration not.human.activity no.evidence
exaggeration 1.00    
not.human.activity 0.39 1.00  
no.evidence 0.42 0.46 1.00

Solution figure 11.1 Correlation table for survey items on climate change scepticism: Climate change is exaggerated (exaggeration), Human activity is not the main cause of climate change (not.human.activity), No evidence of global warming (no.evidence).

  too.much not.pass.laws minimal.intervention not.dictate indiv.freedom personal.responsibility
too.much 1.00          
not.pass.laws 0.25 1.00        
minimal.intervention 0.32 0.12 1.00      
not.dictate 0.68 0.28 0.33 1.00    
indiv.freedom 0.29 0.41 0.02 0.27 1.00  
personal.responsibility 0.41 0.08 0.31 0.46 0.10 1.00

Solution figure 11.2 Correlation table for survey items on government intervention: the government interferes too much (too.much), governments should not pass laws so that people can act to their own advantage (not.pass.laws), governments should intervene as little as possible in economic matters (minimal.intervention), governments should stop dictating to people how they should live (not.dictate), the government should not do more to achieve social goals even if it restricts individual freedom (indiv.freedom), individuals should have more personal responsibility (personal.responsibility).

  buy.local indiv.impact feel.better public.transport conserve.energy reduce.emissions
buy.local 1.00          
indiv.impact 0.48 1.00        
feel.better 0.43 0.63 1.00      
public.transport 0.42 0.44 0.46 1.00    
conserve.energy 0.41 0.50 0.52 0.57 1.00  
reduce.emissions 0.46 0.65 0.59 0.39 0.46 1.00

Solution figure 11.3 Correlation table for survey items on ‘personal responsibility for the environment’: I buy locally to reduce emissions (buy.local), I am obliged to take impact of daily activities on climate (individual.impact), I feel better when reducing emissions (feel.better), I prefer to use public transport (public.transport), I feel uncomfortable when consuming energy (conserve.energy), I try to reduce emissions as much as possible (reduce.emissions).

The correlations are all positive and most are moderately strong.

  • Cronbach’s alpha assesses the internal reliability or consistency of a set of measures. Cronbach’s alpha ranges between 0 and 1 with 1 indicating maximum reliability. The coefficient values in question are high, suggesting that the indicators within each category measure the same underlying concept.
  1. Solution figures 11.4 to 11.9 summarize the distribution of the variables. Values are rounded to two decimal places.

    These two groups look very similar in terms of demographic characteristics.

Gender TWPL (%) DC (%)
Female 51.78 52.29
Male 48.22 47.71

Solution figure 11.4 Gender of participants, by group.

Age range TWPL (%) DC (%)
18–24 9.49 9.64
25–29 8.30 8.65
30–39 17.79 17.20
40–49 22.33 22.56
50–59 24.11 23.86
60–69 17.98 18.09

Solution figure 11.5 Age of participants, by group.

Level of Education TWPL (%) DC (%)
1 (In school) 1.19 1.29
2 (Without school degree) 1.98 2.09
3 (Secondary general school) 34.19 32.80
4 (Intermediate general school) 26.28 26.94
5 (Polytechnic school) 6.92 6.86
6 (University preparatory school) 29.45 30.02

Solution figure 11.6 Highest educational attainment, by group.

Number of children TWPL (%) DC (%)
No children 64.62 65.71
One 20.36 17.59
Two 11.07 12.33
Three 2.96 3.48
Four or more 0.99 0.89

Solution figure 11.7 Number of children, by group.

Membership TWPL (%) DC (%)
No 92.29 91.35
Yes 7.71 8.65

Solution figure 11.8 Environmental organization membership, by group.

Income range (euros) TWPL (%) DC (%)
Less than 500 2.96 4.17
500–1,100 13.44 14.21
1,100–1,500 14.23 13.22
1,500–2,000 15.02 14.61
2,000–2,600 11.46 14.81
2,600–3,200 10.67 10.74
3,200–4,000 11.07 8.15
4,000–5,000 5.14 4.97
5,000–6,000 2.77 1.69
6,000–7,500 0.79 0.40
7,500 or more 0.40 0.50
Do not want to answer 12.06 12.52

Solution figure 11.9 Household net income per month in euros, by group.

  1. Solution figures 11.10, 11.11, and 11.12 provide summary tables for the indices.

    The two groups are quite similar in attitudes. Combined with the answer to Question 5, we can be reasonably confident that any differences in survey responses is due to the question format rather than differences in attitudes or demographics.

  Mean Std Min Max
Ref (DC) 2.37 0.85 1.00 5.00
Ladder (TWPL) 2.29 0.84 1.00 5.00

Solution figure 11.10 Summary table for ‘climate change beliefs’ index.

  Mean Std Min Max
Ref (DC) 3.19 0.66 1.00 5.00
Ladder (TWPL) 3.15 0.70 1.00 5.00

Solution figure 11.11 Summary table for ‘preferences for government intervention’ index.

  Mean Std Min Max
Ref (DC) 3.01 0.82 1.00 5.00
Ladder (TWPL) 3.03 0.79 1.00 5.00

Solution figure 11.12 Summary table for ‘personal responsibility for the environment’ index.

Part 11.2 Comparing willingness to pay across methods and individual characteristics

  • Solution figures 11.13 and 11.14 provide column charts for the variables.
Column charts of minimum WTP.
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Solution figure 11.13 Column charts of minimum WTP.

Column charts of maximum WTP.
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Solution figure 11.14 Column charts of maximum WTP.

The distributions are more left-heavy (higher number of lower values).

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  • Mean WTP is 268.53 and median WTP is 132.00 (rounded to two decimal places).
  • Solution figure 11.15 provides the correlation between the average WTP and the demographic and attitudinal variables.

    The correlation coefficients are very low, suggesting that average WTP may not be strongly correlated with the variables.

Variable Correlation
Education 0.14
Gender 0.04
Belief –0.14
Preferences –0.19
Feelings 0.19

Solution figure 11.15 Correlation table of average WTP and other variables.

  • Solution figure 11.16 shows the table.
Amount (euros) No Yes Abstain Total
48 21 32 12 65
72 30 40 11 81
84 24 45 12 81
108 35 31 7 73
156 31 40 13 84
192 25 25 11 61
252 32 28 9 69
324 41 27 16 84
432 35 29 11 75
540 31 22 9 62
720 39 13 12 64
960 28 15 14 57
1,200 42 21 11 74
1,440 42 15 19 76
Total 456 383 167 1,006

Solution figure 11.16 DC format: Responses for each amount.

  • Solution figure 11.17 shows the percentage of individuals who voted ‘no’ and ‘yes’ for each amount. Values are rounded to two decimal places.
Amount (euros) No Yes
48 50.77 49.23
72 50.62 49.38
84 44.44 55.56
108 57.53 42.47
156 52.38 47.62
192 59.02 40.98
252 59.42 40.58
324 67.86 32.14
432 61.33 38.67
540 64.52 35.48
720 79.69 20.31
960 73.69 26.32
1,200 71.62 28.38
1,440 80.26 19.74

Solution figure 11.17 DC format: Reponses (in percentages), with ‘abstain’ counted as ‘no’.

  • Solution figure 11.18 shows the demand curve.

    The demand curve is generally downward sloping, with the percentage voting ‘yes’ decreasing as the amount increases, though this relationship is not perfect due to the nature of the survey, with each individual only being asked their willingness to pay for one amount. (This curve therefore does not represent the sum of individuals’ willingness to pay at a given price, so is not a ‘demand curve’ in the strict sense.)

‘Demand curve’ from DC respondents.
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Solution figure 11.18 ‘Demand curve’ from DC respondents.

  • Solution figure 11.19 shows the percentage of individuals who voted ‘no’ and ‘yes’ with ‘abstain’ excluded. Solution figure 11.20 provides the demand curve.

    The results do not appear to change drastically after excluding ‘abstain’ respondents.

Amount (euros) No Yes
48 39.62 60.38
72 42.86 57.14
84 34.78 65.22
108 53.03 46.97
156 43.66 56.34
192 50.00 50.00
252 53.33 46.67
324 60.29 39.71
432 54.69 45.31
540 58.49 41.51
720 75.00 25.00
960 65.12 34.88
1,200 66.67 33.33
1,440 73.68 26.32

Solution figure 11.19 DC format: Responses (in percentages), with ‘abstain’ responses excluded.

‘Demand curve’ from DC respondents, under different treatments for ‘abstain’ responses.
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Solution figure 11.20 ‘Demand curve’ from DC respondents, under different treatments for ‘abstain’ responses.

  • In Solution figure 11.21, the extra row shows the calculated values for the difference in means. Values are rounded to two decimal places.
Format Mean Standard deviation Number of observations
DC 348.19 378.65 383
TWPL 268.54 287.70 348
Diff in means 79.65 475.50 731

Solution figure 11.21 Summary table for WTP.

  • The ‘width’ of the confidence interval is 1.55, so the confidence interval is [79.65 – 1.55, 79.65 + 1.55], which is [78.10, 81.21]. The difference in means is large (around 80 euros) and also precisely estimated, so we can be confident that the observed difference is not due to chance i.e. WTP is higher under the DC format than the TWPL format. As the confidence interval lower bound is a long way from 0, the above finding is fairly robust and it is likely that the conclusion would not change even if we allowed for slightly different data models.
  • The median for the DC format is 192, which is similar to the median for the TWPL format (132). In contrast, the mean for the DC format is almost double the mean of the TWPL format.
  • The median is therefore more robust to changes in question format, and governments may want to use the median instead of mean WTP.
  • The median WTP is slightly lower than what is needed to completely fund the required mitigation activities.

    There are many ways to increase support/involvement in climate change mitigation activities. While most people now believe that climate change is real, they may underestimate its severity and/or believe that their individual actions cannot help address the problem. Governments can help change these attitudes through public information campaigns or funding organizations that publicize the effects of climate change (for example, the BBC’s Blue Planet II documentary not only helped raise public awareness of human impact on the environment, but also resulted in lifestyle changes for the majority of people who watched it).