Estimating non-market values under scenario and policy ambiguity: the case of climate change mitigation in Australia

Abstract

This report proposes an extension to existing models of non-expected utility (NEU) in the stated preference (SP) literature. The extension incorporates the impact of multiple sources of ambiguity in individual decision making behaviour. Empirical testing of the proposed decision model was carried out in Australia using a dichotomous choice contingent valuation study of a national carbon pollution reduction scheme (CPRS).

The results of the study demonstrate that subjective expectations of the context scenario and subjective policy expectations are important determinants of individual decision making in a stated preference framework. The results of the study also demonstrate that decision weight functions are non-linear (quadratic) in subjective scenario expectations and subjective policy expectation. Although evidence was found to link willingness to pay to scenario ambiguity, policy ambiguity was found to have no statistically significant influence on individual decision making.