Consequentiality and Demand Revelation in Double Referenda

Abstract

Surveys used to elicit values for environmental public goods often employ variants of the referendum mechanism due to the cognitive simplicity and familiarity of respondents with the mechanism. One variant, the double referendum mechanism, requires respondents to state twice how they would vote for a given policy proposal given their cost of the good. In this mechanism, the cost in the second referendum question is related to the subject’s response to the first referendum question. Data from these surveys often exhibit anomalies inconsistent with standard economic models of consumer preferences. There are a number of published explanations for these anomalies, mostly focusing on problems with the second vote. This paper reports the results of an experiment investigating two versions of a consequential double referendum mechanism. The aim is to determine whether introducing consequentiality induces demand revelation or fails to remove the sorts of anomalies observed in field survey data. The experiment also contains a qualitative follow-up questionnaire, enabling a comparison of the heuristics employed by subjects. The results have implications for the design and analysis of future field studies to estimate the economic benefits from environmental programs.

Keywords: Contingent valuation, demand revelation, experimental economics

JEL Classification: C91, Q51