Multi-Metric Indicator Use in Social Preference Elicitation and Valuation Patrick Fogarty UW-Whitewater Economics 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 UsefulVery Useful Goal of Indicators What we 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  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

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?

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

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 VariableNMean Standard DeviationMinMaxSkewness Choice Fuel Price Fuel Index Rating

Results – Mixed Logit ChoiceCoefficient 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 - 2.9Human Health Impact - 3.4Natural Resource Use Weigting SystemWeight ValueWeight ValueWeight Value Marginal WTP Equal33% $ % $ % $ $ Estimated34% $ % $ % $ $ Individualistic25% $ % $ % $ $ Egalitarian50% $ % $ % $ $ Hierarchist40% $ % $ % $ $ Fuel Index Marginal WTP = $0.025