June 21, 2010 IFPRI Policy Seminar Washington, DC Economics Beyond Markets:Choice Experiments in Developing Countries Jeff Bennett Ekin Birol Derek Byerlee

1. Economics Beyond Markets:
Choice Experiments in Developing Countries
Jeff Bennett

2. Background
 Policy principles:
• Information based
• People focused
• Transparent
 Markets are one source of information on peoples’
preferences
 BUT … when markets are ‘thin’, distorted through
interventions or non-existent?
 Need to look beyond markets:
Choice experiments

3. Choice Experiments
 Ask people about their preferences in a survey
 Respondents asked to make a sequence of choices
 Options available described:
• Product ‘attributes’
• Product cost
 Designed to:
• ‘mimic’ an existing thin or corrupt market
• Create a ‘pseudo market’

4.  Choice options vary as attributes and cost take on
different levels
 Choice options cover the full spectrum of
possibilities
 Choices demonstrate respondents’ willingness to
trade-off the product attributes and cost
 The ‘marginal rates of substitution’ between the
attributes and cost: ‘implicit prices’ or WTP
 Simulate ‘market share’ for ‘new’ products

5. A choice question
In 20 years Area of Number of Number of New tax
time Vegetation species jobs lost
No change 1000 ha 27 50 $0
in NRM
New NRM 1 4000 ha 28 40 $40
New NRM 2 3000 ha 32 35 $60

6. A choice question
Taste Packaging GM Price
Old ** Plastic No $3.20
product
New **** Foil No $5.00
Product 1
New ** Plastic Yes $3.00
Product 2

7. Applications
 An established technique in developed countries
 Commercial market research:
• New product identification and development
• Regulation impacts
 Transport economics:
• Introduction of new public transport modes, impacts of
tolls, changing services
 Health economics:
• Public hospital services, treatment options

8.  Environmental economics:
• Estimation of non-market benefits and costs
• ‘Use values’ – choices regarding visitation to recreation
sites
• ‘Non-use values’ – WTP for environmental protection
 Food policy:
• Food safety impacts on demand
• GM food attributes

9. Policy significance
 EU Directives require CBA inclusive of non-market
values
 Sanctioned by DEFRA in the UK
 Damage assessment cases in the US
 In Australia:
• Regulatory Impact Assessments
• Planning Assessment Commission
• Food Safety Authority
 The Environmental Value Reference Inventory
(EVRI)

10. … and developing countries
 Technique provides useful, practical policy-
orientated results BUT has complexities
 Can it’s potential be untapped in developing
country contexts?
 Communication issues?
 Choice difficulties?
 Social setting compatibility?
 Institutional setting compatibility?