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Weekly UpdatesThe most common experimental valuation methods in the agricultural economics literature today are experimental auctions (e.g., Corrigan and Rousu 2006) and nonhypothetical choice experiments (e.g., Alfnes et al. 2006). Researchers have used experimental auctions to estimate consumer willingness to pay (WTP) for new products and product traits for at least twenty-five years (Hoffman et al. 1993). Assuming the researcher uses a demand-revealing auction mechanism like the Vickrey (1961) or the Becker-DeGroot-Marschak (BDM) (1964) auction, bids provide a direct measure of auction participants' WTP for the good for sale. Taking the difference between bids submitted for a conventional good and a good possessing some new quality improvement allows the researcher to easily estimate participants' WTP for this novel trait.
While interpreting auction results is straightforward, explaining the auction mechanism to participants is not necessarily so. In the overwhelming majority of retail transactions taking place in the field, consumers are presented with a fixed price at which they can buy one or more units of the good for sale. This is particularly true in the supermarket environment, where Americans buy most of their food. By contrast, experimental auction participants are presented with a fixed quantity and asked to name the highest price they would be willing to pay. The novelty of the name-your-reservation-price exercise is then compounded by the introduction of an unfamiliar auction mechanism.
On the other hand, participants in choice experiments (CEs) are presented with two or more goods and asked to choose the one they most prefer. Exercises like this are more similar to familiar retail environments and therefore should seem straightforward to participants. CEs also have a sound theoretical basis given that they combine Lancaster's (1966) characteristics theory of value and McFadden's (1974) random utility theory. Hypothetical CEs have long been used in the marketing and environmental valuation literatures. More recently, agricultural economists have begun using nonhypothetical CEs to value private goods (e.g., Lusk and Schroeder 2004). Most CEs offer a polychotomous choice where participants choose to purchase at most one unit of one of the goods presented.
A third valuation method that incorporates many of the advantages of both experimental auctions and CEs is the nonhypothetical "open-ended choice experiment" (OECE) (e.g., Maynard et al. 2004). As with more conventional CEs, participants in an OECE are presented with multiple goods for sale at different prices. And as with experimental auctions, participants provide open-ended responses. That is, they can choose to purchase as many units of the goods for sale as they wish. Unlike the name-your-reservation-price exercise in an experimental auction, the name-your-quantity exercise in an OECE is familiar to consumers who engage in a similar exercise every time they purchase food at a supermarket. By soliciting count data instead of binary data, the OECE allows the researcher to collect a richer data set for a given sample size.
In this study, we use both an experimental auction and an OECE to estimate the value that Filipino consumers place on genetically modified "golden rice." In particular, we compare the results of a uniform-price Vickrey auction with four units supplied with those from an OECE that can best be thought of as a refinement of existing OECE methodologies. (1) We conducted our experiments in the Philippines, where rice is a staple food consumed by all Filipinos regardless of age, income, or other characteristics. The latest version of golden rice has been approved for trial plantings in India and the Philippines (New Scientist 2005). However, the introduction of genetically modified foods has met with mixed consumer reactions (Lusk et al. 2005). Therefore, we are interested in estimating Asian consumers' WTP for golden rice and how it is affected by positive and negative information about genetic modification. The data set used in this study is, to our knowledge, the first to use nonhypothetical empirical valuation techniques to estimate consumer WTP for golden rice and the first of any kind focusing on Asian consumers' WTP for golden rice.
The remainder of the article is organized as follows. The next two sections review the literature on golden rice and the effects of information on experimental auction bids, respectively. We then present a more detailed discussion of the OECE and how it relates to the existing auction and CE literature. This is followed by a description of our experimental design. We then demonstrate how OECE data can be used to estimate demand, own-price elasticity, and consumer surplus. This is followed by an application to golden rice as well as a comparison of value estimates from the OECE and the uniform-price auction.
Golden Rice
The second generation of genetically modified (GM) crops include those that are bred for attributes desired by consumers rather than producers (Rousu et al. 2005). "Golden rice," which has been genetically engineered to contain a higher level of vitamin A, is a prime example. It is aimed at combating vitamin A deficiency (VAD) in developing countries where rice is the main staple (Nielsen and Anderson 2005). VAD can cause temporary or permanent vision impairment and increased mortality, especially among children and pregnant or lactating women.
Scientists at the Philippine-based International Rice Research Institute are currently working on verifying and improving golden rice gene constructs and incorporating them into popular rice varieties. Although golden rice is still in the development stage, it is already a source of controversy. Supporters consider it a solution to VAD, while critics denounce it as a public relations ploy and consider it useless for the poor (Zimmermann and Qaim 2004).
During the last decade, governments and aid agencies have experimented with various policies for reducing VAD (e.g., food fortification, supplementation, and dietary education programs). Because rice is the dominant staple in Asia, golden rice has several advantages as a vitamin A intervention strategy: (a) golden rice could be distributed through existing channels for modern rice varieties; (b) golden rice could deliver vitamin A without the institutional, industrial, and logistical infrastructure required for supplementation and fortification; (c) if culturally acceptable and agronomically sound, golden rice has the potential to provide widespread relief; and (d) most important, golden rice could sustainably address VAD with minimum additional expense beyond the sunk costs of development and would require only modest additional investments to achieve greater geographic coverage (Robertson, Unnevehr, and Dawe 2002).
Zimmermann and Qaim's (2004) scenario calculations demonstrate that golden rice will mitigate blindness and premature death in the Philippines, with social benefits ranging between $16 million and $88 million per year. One unresolved issue, however, is consumer acceptance of golden rice (Robertson, Unnevehr, and Dawe 2002). Zimmermann and Qaim (2004) point out that quality improvements generally increase consumer demand, but this presupposes that consumers recognize and appreciate the quality improvement.
Hossain and Onyango (2004) find that consumers' acceptance of GM foods is driven primarily by their perceptions of risk, benefit, and safety of the technology. Bredahl (2001) finds that consumers do not distinguish between risks and benefits of the technology itself and risks and benefits of the resulting products. Because consumers generally have little firsthand experience with GM foods, they are using attitudes toward the technology to form opinions about GM food products.
Anderson, Jackson, and Nielsen (2005) use a global computable general equilibrium trade model to estimate welfare gains from the introduction of golden rice. Assuming golden rice captures a 45% market share in Asia, the authors estimate that its introduction would lead to a $17.4-billion annual welfare gain, with 73% of that gain coming from increased productivity among unskilled Asian workers.
The only previous empirical valuation study focusing on golden rice uses the hypothetical contingent valuation method to estimate WTP among a random sample of Mississippi households (Lusk 2003). Lusk finds that 62% of survey respondents given cheap talk information to counter hypothetical bias were willing to pay a $0.10 per-pound premium for golden rice. The author estimates that, on average, these respondents would be willing to pay $0.87 per pound for golden rice, a $0.12 premium over the $0.75 reference price for white rice.
Information Effects
Participants in experimental auctions are often provided with information regarding the goods for sale. Several experimental auction studies have evaluated the effect that positive or negative information can have on participants' WTP for GM food products. For example, Tegene et al. (2003) examined the effects of positive, negative, and two-sided (conflicting) information about biotechnology on WTP for three different food products. The authors found that participants who received only negative information bid on average between 35 % and 38% less for GM-labeled foods than for foods without the GM label. On the other hand, participants who received only positive information bid on average at most 4% less for GM-labeled foods. Participants who received both positive and negative information bid on average between 16% and 29% less for GM-labeled foods, suggesting that consumers place greater weight on negative information than on positive information. This is consistent with the findings of earlier studies, such as Fox, Hayes, and Shogren (2002), who found that WTP for irradiated foods is affected by information in the same way.
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