An incentive compatible conjoint ranking mechanism.

Participants were requested to rank the relative desirability of several meat products that differed by the attributes of: (a) whether the animal was pasture-grazed, (b) whether the animal was administered growth hormones and antibiotics, (c) whether the meat was traceable back to the farm, (d) package size, and (e) price. These attributes are of interest for a number of reasons. On the policy front, there is ongoing action related to traceability and there have been recent legislative action to ban the use of some antibiotics in livestock production. Valuation estimates are needed to determine the welfare effects of such policies. On the marketing front, firms are increasingly interested in selling "natural" products without hormones and there is increasing interest in the value of "grass fed" beef. Although several previous studies have estimated consumers' values for these characteristics, e.g., Alfnes and Rickertsen (2003), Dickinson and Bailey (2002), Lusk, Fox, and Roosen (2003), Lusk, Feldkamp, and Schroeder (2004), Lusk, Norwood, and Pruitt (2006), McCluskey et al. (2005), Umberger et al. (2002), to our knowledge this is the first study to investigate preferences for pasture-raised beef relative to nonpasture-raised beef (based on perceptions and not on taste) and to study the effect of information about the healthfulness of such products. This latter issue has become increasingly important as evidenced by the USDA's recent solicitation of comments on a proposed standard for grass-fed and pasture-fed beef claims.

The IC conjoint task involves the exchange of real money and real food. There is some debate in the literature about the proper way to compensate people for participating in experiments so that elicited valuations are not unduly influenced by the compensation approach. A common approach is to give people money for participating and then request that participants purchase a product with the endowed money. However, several studies have shown that people's willingness-to-pay for a good in an experiment is significantly influenced by the amount of money given to them (e.g., Loureiro, Umberger, and Hine 2003; Rutstrom 1998). This led Loureiro, Umberger, and Hine (2003) to remark (p. 271), "[n]ew ways of compensating participants in experimental auctions should be investigated." A solution to this problem might be to provide participants no compensation at all. However, such an approach is likely to drastically reduce participation rates, which would increase sample selection bias and would significantly underestimate people's values for goods as there are often many cash constrained people in a store setting, e.g., many consumers come to a store planning to pay by credit card or check and do not have any cash to participate in a value elicitation experiment even though they might have a positive willingness-to-pay for the good in question.

Accordingly, we utilized a slightly different approach to compensate participants and to estimate the marginal utility of income. In particular, rather than asking people to pay a price for a particular meat option, people were offered various cash amounts with each option. In regard to this procedural choice, it is important to note three important facts. First, one might argue that loss-aversion would create a difference between the approach used here and one in which individuals ranked products that they wished to purchase. However, Novemsky and Kahneman (2005) argue that in money transactions, of the sort involved in this exchange, there should be no loss aversion. Second, empirical findings suggest this sort of compensation mechanism yields accurate predictions of people's shopping behavior. For example, Lusk, Pruitt, and Norwood (2006) found responses from an in-store experiment where people chose between various products coupled with cash offers (as in this study) accurately predicted actual retail sales in the grocery store several weeks later. Further, Ding (2007) utilized a related compensation mechanism where auction winners were paid an amount equal to the difference in price and a certain cash amount ($250 in one experiment and $320 in another). Ding (2007) found significantly better out-of-sample predictive performance with this compensation mechanism as compared to traditional hypothetical approaches where no compensation is given at all. Finally, the purpose of this study is to compare traditional, hypothetical conjoint response to a new IC conjoint mechanism. In both treatments (hypothetical and nonhypothetical) people ranked the products and cash offers in terms of which they would like to receive. Thus our approach permits an unconfounded test of the effect of moving from a traditional, hypothetical conjoint method to the new IC conjoint mechanism.

Table 1 lists the attributes and attribute levels investigated in this study. An orthogonal fractional factorial design consisting of 16 product profiles was created such that all main and two-way interaction effects were independently identifiable. These 16 profiles were blocked into sets of eight. Each subject was asked to rank the desirability of the eight profiles in addition to a "no meat" option that consisted simply of an offer of an amount of cash that was higher than any of the cash offers that included a meat offering. This latter option was included to account for people that participated in the study but did not want to take home any meat. If a "cash only" offer were not presented, it is likely that the price/cash effect would be overstated in the sense that nonmeat preferring individuals would simply choose meat profiles with higher cash offers. Our econometric model, which is explained momentarily, explicitly controls for the "no meat" option, providing an estimate of the disutility of "no meat" holding constant price/cash. (4) Individuals were given nine cards (eight containing a meat product description and one "no meat" option) and were asked to rank the cards according to their desirability.

Individuals were randomly assigned to one of the eight treatments (there are three treatment variables each varied at two levels each, [2.sup.3] = 8). Treatments varied according to whether: (1) the conjoint ranking was IC or whether the ranking was hypothetical, (2) the conjoint task related to beef steaks (ribeyes) or ground beef, and (3) whether information was provided about the health benefits of pasture grazed beef. The purpose for including two other treatment variables in addition to whether the conjoint ranking was real or hypothetical was to determine whether the IC property has an effect, not just on product attributes, but on the effect of other treatment variables. The study took place over a one-week time period and the treatment was alternated every hour. The fewest number of participants in any one treatment was 59 (the hypothetical, steak, no-info treatment) and the most participants in a treatment was 75 (the hypothetical, ground beef, no-info treatment).

The first treatment variable is the nature of the decision task: either hypothetical or nonhypothetical. Traditional conjoint analysis involves people hypothetically ranking a series of product descriptions according to their relative desirability. This is exactly what was done in our treatments where the conjoint task was hypothetical. Specifically, individuals in the hypothetical treatment were given the following instructions:

For participating in this survey, we would like you to consider the

desirability of several hypothetical gifts. Although you will not

actually be given any of these gifts, we ask that you please think

carefully about your answers.

You will be viewing a poster with 9 gift coupons, each of which

describes a hypothetical gift. Gifts vary in the type and amount of

meat that you can receive. Each gift option also indicates whether

the meat comes from cattle that were raised in a pasture, were

produced without antibiotics or added growth hormones, and/or

whether the meat is traceable back to the farm. All gift options

also vary by a cash amount that would be given to you in addition

to the meat.

Your task is to sort the 9 gift coupons you have been shown in

terms of their desirability to you.

Please write the letter of the gift option you find most desirable

in the space below next to the number 1, the letter of the gift

option you find second most desirable next to the number 2, and so

on. The option you find least desirable should be put next to the

ranking of 9.

Although it is typically assumed that individuals "do their best" and rank products according to their preferences, there is no monetary cost to individuals deviating from their true preferences or monetary reward for putting cognitive effort into the ranking task.

In the IC, nonhypothetical treatments, individuals were also given nine cards to rank, but in this case, they were asked to place the cards on a wheel that was divided into nine slices of varying size. Participants were asked to place the option they found most desirable in the largest slice on the wheel marked with a number one, the second most desirable option in the second largest slot marked two, and so on. Once all nine cards were allocated, the wheel was spun around a fixed pointer. Once the wheel stopped spinning, the pointer indicated the option that was actually received. Thus, in the nonhypothetical treatments, individuals were actually given the meat and/or the cash associated with the option that was selected by the wheel. More specifically, participants in this treatment were instructed as follows: