Discrete Choice Experiment :: Analysis, Random Utility Theory

The CE is founded on neoclassical micro-economic consumer theory. It assumes that consumers are highly rational decision makers who seek to optimize their utility by selecting the best option among the available alternatives, subject to constraints such as time and income (Ben-Akiva & Lerman 1985). So, a consumer makes a decision by evaluating the costs and benefits of the given alternatives, and selects among them which yields the highest utility to him/her (benefits-cost). In the CE, the choice is discrete in nature (Hanemann 1984), that is, only one alternative from the given choice set can be selected. Therefore, it is also known as discrete choice experiment (DCE). The alternative j will be chosen over some option g, if expected utility for individual, i , (Uij) exceeds the expected utility (Uig) for all alternatives. This implies that the probability of selecting an option is likely to increase with utility from the option and probability (P) that individual, I, will choose option j over other options g in a complete choice set R, is given by: P (jïÆ' ·C) = P{ (Uij >Uig, s.t. ï€ ¢ g Є R, and j ≠ g)} (2) Usually, in non-market valuation studies using CE model, respondents are given a choice card containing three alternatives including status-quo (current situation) to select. These alternatives in the choice set are outcomes of policies or programs related to the problem being investigated and distinguished by different levels. The levels could be either qualitative or numerical. The effects of the alternatives are described based on the Lancaster’s characteristics theory of value (Lancaster 1966). The theory states that an individual derives utility from the attributes possessed by the goods rather than the goods per se. The choices; therefore, are considered as a function of the attributes that the given alternatives hold. Including the outcomes of policies or programs related to mitigate the damaged caused by invasive plant species, Mikania in particular, a monetary value is included as one of the attributes as the policy cost to the respondent. Since, the alternatives are evaluated indirectly through their characteristics; it may be possible that consumers may have preference ordering over the attributes included (Lancaster 1966). It is widely accepted that an increase in a level of the preferred attributes or positive externalities such as; biodiversity, forest products and income generating activities, will result, ceteris paribus, in high utility from the goods or services to respondents. On the other hand, the utility from the goods or services decreases with increasing the level of the unwanted attributes or negative externalities such as abundance of invasive plants, pollution and in most cases monetary value.