Distortions in willingness-to-pay for public goods induced by endemic distrust in institutions

Habtamu Tilahun Kassahun*, JD (Joffre) Swait JR, Jette Bredahl Jacobsen

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

6 Citations (Scopus)
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In this paper, we analyze the implications for the economic valuation of the provision of public goods, considering respondents’ perceptions of the institution(s) that provide the service. The specific behavioral mechanism whereby institutional distrust (ID) shows itself is through the activation of screening of choice options (choice set formation). However, ID-induced choice set formation might be confounded with the consumer budget constraint, especially in a developing country context, leading to biased welfare estimates for service improvement. We formulate a semi-compensatory hybrid choice set formation (SC-HCSF) model that enables us to 1) discriminate the effect of a budget constraint from that of ID-induced choice set formation and 2) characterize their separate impacts on welfare estimates using a spatial framework. We compare our model results to those from a standard Random Parameters Logit (RPL) Model. The RPL underestimates (overestimates) welfare when individuals have a low (high) ID. Based on our empirical model results, we demonstrate that the impacts of ignoring institutional trust issues can be highly deleterious to project appraisals, particularly in settings where legislative and regulatory institutions are perceived to be endemically corrupt.

Original languageEnglish
Article number100271
JournalJournal of Choice Modelling
Publication statusPublished - 29 Jan 2021

Bibliographical note

Funding Information:
The data collection for this research was funded through the European Commission as part of the Erasmus Mundus Fellowship Program (Forest and Nature for Society, FONASO). However, the conceptualization of the paper and the method used in this manuscript were developed under postdoctoral support for H.T. Kassahun by Australian Research Council Discovery Project DP140103966 , and the Centre for Macro-ecology, Evolution and Climate, the Danish National Research Foundation (grant number DNRF96 ).

Publisher Copyright:
© 2021 Elsevier Ltd


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