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Environmental Conservation and Market Design

Publications

  • Arnold, M., J. Duke, and K.D. Messer. “Adverse Selection in Reverse Auctions for Environmental Services” Land Economics.
    [ abstract ]
    This paper examines how auctions commonly used to select parcels for their ecosystem services introduce adverse selection that limits cost effectiveness. Given that hidden information underlies this problem, induced-value experiments are used to test the theory and examine the extent of adverse selection in these markets. In comparison to the baseline of either doing nothing or the optimality of an externality-correcting tax, a discriminatory reverse auction and two screening contracts are tested. In limited budget situations, the auction achieved the lowest social surplus, while screening contracts that rely upon the government observing the development value yield the highest relative social surplus. These results are important because recent environmental policy trends are focused on expanding fiscally costly reverse auctions.
  • Messer, K.D., J. Duke, and L. Lynch. Forthcoming. “Applying Experimental Economics to Land Economics: Public Information and Auction Efficiency in Land Preservation Markets.” in the Oxford Handbook of Land Economics. J. Duke and J. Wu editors. Oxford Press.
  • Messer, K.D., J. Suter, and J. Yan. Forthcoming. “Context effects in a negatively framed social dilemma experiment” Environmental and Resource Economics.
  • Suter, J., J. Duke, and K.D. Messer, and H. Michael. 2012. “Behavior in a Spatially Explicit Groundwater Resource: Evidence from the Lab.” American Journal of Agricultural Economics. 94(5): 1094-1112.
    [ abstract ]
    This research uses laboratory experiments to examine how hydrogeologic properties of groundwater models influence decision making.The results reveal that pumping rates are highest when the underlying model is such that the future costs of groundwater use are broadcast evenly to all users, as a majority of participants behave myopically. There is less myopic behavior when the groundwater dynamics are governed by spatially explicit models, where the private cost of groundwater use is high relative to external costs. These results suggest that models used to simulate common-pool resource dynamics play an important role in determining both economic predictions and behavioral outcomes.
  • Shawhan, D., K.D. Messer, W.D. Schulze, and R.E. Schuler. 2011.“An Experimental Test of Automatic Mitigation of Wholesale Electricity Prices.” International Journal of Industrial Organization. 29(1): 46-53.
    [ abstract ]
    In several major deregulated electricity generation markets, the market operator uses an “automatic mitigation procedure” (AMP) to attempt to suppress the exercise of market power. A leading type of AMP compares the offer price from each generation unit with a recent historical average of accepted offer prices from that same unit during periods when there was no transmission-system congestion to impede competition. If one or more units' offer prices exceed the recent historical average by more than a specified margin, and if these offer prices raise the market-clearing price by more than a specified margin, the market operator replaces the offending offer prices with lower ones. In an experiment, we test an AMP of this type. We find that it keeps market prices close to marginal cost if generation owners have low market power in uncongested periods. However, with high market power in uncongested periods, a condition that may apply in many parts of the world, the generation owners are able to gradually raise the market price well above short-run marginal cost in spite of the AMP. We also test the effect of the AMP on the frequency with which high-variable-cost units are used, inefficiently, in place of low-variable-cost units.

 

Research Funding

  • National Science Foundation – funding support from the Decision, Risk & Management Sciences, Engineering, and Geosciences directorates, 2012-2013. “WSC Category 1 - Water Sustainability in Coastal Environments: Exploratory Research for an Integrated Study of the Effect of Anticipated Sea Level Rise on Contaminated Site Risk.” $145,000.  J.M. Duke (PI), K.D. Messer, H. Michael and D. Sparks (co-PIs).
  • National Science Foundation – funding support from the EPSCoR program, 2011-2012. “An Economics Analysis of the Visual Effects of Offshore Wind Projects.” $54,676. ID#0814251. K.D. Messer (PI), J. Duke, J. Johnson, and G. Parsons (co-PIs).
  • USDA Economic Research Service, 2011-2013. “Designing Choice Architecture to Cost-Effectively Reduce Agricultural Nutrient and Sediment Water Pollution in the Galveston Bay Watershed: A Framed Field Experiment.” $100,000.  ID#58-6000-1-0037. K.D. Messer and W.D. Allen (PIs), O. Amundsen (Co-PI).
  • USDA ERS, 2007-2012. “Applying Economic Experiments to Improve the Design and Implementation of Conservation Programs” $332,104. K.D. Messer, M. Weinberg (PIs), J. Duke, D. Hellerstein, N. Higgins, B. Kirwan, L. Lynch, and M. Roberts (Co-PIs).
  • US Environmental Protection Agency, National Center for Environmental Economics, 2008-2010. "2009 NAREA Workshop: The Use of Experimental Methods in Environmental and Natural Resource Economics" $60,624. K.D. Messer (PI), Jim Murphy and Titus Awokuse (co-PIs)
  • USDA Economic Research Service and Farm Foundation, 2009-2010. "2009 NAREA Workshop: The Use of Experimental Methods in Environmental and Natural Resource Economics" $10,000. K.D. Messer (PI) and Jim Murphy (co-PI).
  • Lerner College Multidisciplinary Research Grant, University of Delaware, 2008-2009. "Mechanisms for Allocating Agricultural Conservation Easements" $6,000 Arnold, M. (PI), J. Duke and K.D. Messer (co-PIs).
  • Delaware Department of Agriculture, 2010.  “Exploring Ways to Ensure the Efficiency and Effectiveness of Delaware's Conservation Efforts”$10,000. K.D. Messer and J. Duke (PIs).
  • University of Delaware, CANR Seed Grant, 2007-2009. "Applying Economic Experiments to Improve the Design and Implementation of Conservation Programs" 20,000. K.D. Messer and J. Duke (PIs).

Food Safety and Labeling

Publications

  • Liu, Z., C. Kanter, K.D. Messer, and H. M. Kaiser. 2013. “Identifying significant characteristics of organic milk consumers: a CART analysis of an artefactual field experiment” Applied Economics. 45(21): 3110-2121.
    [ abstract ]
    The organic dairy category is one of the fastest growing categories of organic foods in the US. Organic milk consumers generally cite perceived health benefits and lower risk of food contamination, as well as perceived superior quality and environmental sustainability of organic farming methods, as the major motivations for preference of organic over conventional milk. While the attributes of organic milk that are valued by consumers are fairly well-known, more ambiguity exists regarding the demographic characteristics of the typical organic milk consumer. This research makes use of experimental data from 148 adult participants and use a Classification and Regression Tree (CART) analysis, a nonparametric modelling approach, to identify how Willingness-to-Pay (WTP) for organic milk varies with the demographic profile of experiment participants. The study finds that perceived taste of organic milk, concern for the risk of consuming conventional milk, being a primary shopper, and the quantity of milk consumed are the major factors that separate experiment participants into groups with high and low WTP for organic milk.
  • He, N. and J.C. Bernard. “Differences in WTP and Consumer Demand for Organic and Non-GM Fresh and Processed Foods.” Agricultural and Resource Economics Review, 40(2011):218-232.
  • Gifford, K. and J.C. Bernard. “The Effect of Information on Consumers’ Value for Natural and Organic Chicken.” International Journal of Consumer Studies, 35(2011):282-289.
  • Dillaway, R., K.D. Messer, J. Bernard, and H.M. Kaiser. 2011. “Do Consumer Responses to Media Food Safety Information Last?” Applied Economics Policy and Perspectives. 33(3): 363-383.
    [ abstract ]
    Using experimental methods with adult subjects from the mid- Atlantic region of the United States, this research examines both the short- and longer-term impacts of media information on consumer purchasing behavior. Subjects in the treatment group were given food safety information about poultry from a popular consumer magazine. Willingness to pay (WTP) estimates were then elicited for two types of chicken breasts: (1) a leading-brand that was identified in the information treatment as having a high incidence of Campylobacter and Salmonella bacteria; and (2) a lesser known brand, which was reported as being relatively free of harmful bacteria. Results indicated that both negative and positive food safety information significantly impacted consumers’ WTP for safer chicken compared to the reportedly less-safe leading-brand chicken. These changes in behavior persisted throughout the seven-week study period.
  • Bernard, J.C. and D.J. Bernard. “Comparing Parts with the Whole: Willingness to Pay for Pesticide Free, Non-GM, and Organic Potatoes and Sweet Corn.” Journal of Agricultural and Resource Economics, 35(2010): 457-475.
  • Hustvedt, G. and J.C. Bernard. “Effects of social responsibility labeling and brand on willingness to pay for apparel.” International Journal of Consumer Studies, 34(2010):619-626.
  • Payne, C., K.D. Messer, and H.M. Kaiser. 2009. "Which Consumers Are Most Responsive to Media Induced Food Scares?" Agricultural and Resource Economics Review.
  • Bernard, J.C. and D. J. Bernard. “What is it about Organic Milk?  An Experimental Analysis.”  American Journal of Agricultural Economics, 91(2009): 826-836.
  • Kanter C., K.D. Messer, and H.M. Kaiser. 2009. "Does Production Labeling Stigmatize Conventional Milk" American Journal of Agricultural Economics. 91(4):1097-1109.
    [ abstract ]
    Production labeling is a common approach for differentiating otherwise similar products in the marketplace. While these labels may convey positive messages to consumers about the new product, they may simultaneously stigmatize the conventionally produced product by highlighting perceived problems. The net economic result for producers can be negative since consumers may decrease their willingness to pay for the conventional product that dominates the market, while the new product has a relatively small market share. This experimental research identifies this stigma effect in the case of milk, where the introduction of rBST-free and organic milk reduces consumers?willingness to purchase conventional milk.
  • Gifford, K. and J.C. Bernard.  “Factor and Cluster Analysis of Willingness to Pay for Organic and Non-GM Food.” Journal of Food Distribution Research, 39(2008): 26-39.
  • Hustvedt, G. and J.C. Bernard. 2008. "Consumer Willingness to Pay for Sustainable Apparel: The Influence of Labeling for Fibre Origin and Production Methods." International Journal of Consumer Studies, 32(2008):491-498.
    [ abstract ]
    This study of value-based labelling for apparel products examined consumer willingness to pay (WTP) for three credence attributes of fibre: origin, type and production method. Experimental auctions were conducted with student subjects in Texas and used socks made from cotton and polylactic acid (PLA), a fibre manufactured from corn. The bid results of two rounds were compared. The first round was conducted without information about the credence attributes of the socks. The second round included varying levels of three types of attributes: fibre origin (imported, US and Texas), fibre type (cotton and corn) and production method [conventional, organic and non-genetically modified (GM)]. Tobit regression analysis was performed using the attributes and subject demographics to determine consumer WTP for the various attribute levels and to profile consumers with interest in the attributes. In terms of origin, results show that participants were willing to pay a premium for socks with fibres produced in Texas, but not for those produced in the US. Fibre type mattered, with participants requiring a discount once they learned that socks were made with PLA fibre. The greatest premium ($1.86) was placed on socks labelled as organic, slightly more than the premium for socks labelled as non-GM. The results also indicate that women were less willing to pay for US fibres than men, and Hispanics were less willing to pay for organic or non-GM fibre production. A key finding of this study is that consumers value information about the local origin of fibres. The premium for organic fibres is not unexpected, given the success of the organic apparel market, but the premium on non-GM fibres suggests that sustainable production systems that are not organic may be successful if they emphasize other attributes such as local or non-GM.
  • Bernard, J.C., J.D. Pesek, Jr., and X. Pan. 2007. "Consumer Likelihood to Purchase Chickens with Novel Production Attributes." Journal of Agricultural and Applied Economics 39(2007):581-596.
    [ abstract ]
    Typical supermarket chickens are produced with novel or controversial attributes. This continues despite contrasting growth in consumer interest in organic and natural foods. This study surveyed Delaware consumers likelihood to purchase chicken given different attributes: free range, given antibiotics, irradiated, fed genetically modified (GM) fee, GM chicken, and price. Examining conjoint analysis data with a heteroskedastic two-limit tobit model, GM chicken and other novel attributes were found to lower purchase likelihood significantly. Understanding these results should help the industry meet consumer preferences while aiding its continued expansion to benefit workers and growers across the South.
  • Bernard, J.C., C. Zhang and K. Gifford. 2006. "An Experimental Investigation of Consumer Willingness to Pay for Non-GM Foods when an Organic Option is Present." Agricultural and Resource Economics Review, 35(2006):374-385.
    [ abstract ]
    This research compared bids that consumers placed on non genetically modified (GM), organic, and conventional versions of food products in order to determine if the organic market well serves those seeking to avoid GM foods. Auction experiments using potato chips, tortilla chips, and milk chocolate were conducted with 79 subjects. Bids were modeled as a function of consumer demographics using a heteroskedastic tobit regression model. Results with the non-GM attribute nested into the organic characteristic showed that the latter’s marginal effects ere insignificant. This suggested the potential to further develop non-GM products for consumers not willing to pay extra for the remaining organic attributes.

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Research Funding

  • Northeast Center for Risk Management Education, 2012-2013. “Pricing and Marketing Risk Management Education for Honey Producers.” $35,000.  D. Delaney and K. Messer (PIs), J.R. Fooks (Co-PI).
  • USDA – Southern SARE. “Marketing of Locally Produced Sustainable Animal Fiber Products.”  Sept. 1, 2008 – Aug. 31, 2011. Funds $140,000. (Lead PD: G. Hustvedt, Co-PDs: J.C Bernard, H.H, Peterson) 
  • Texas State University San Marcos 2007 Research Enhancement Program. “Labeling of Texas based fiber products for environmental attributes.” Feb. 1, 2007 – Jan. 31, 2008. Funds: $8,000. G. Hustvedt (PI), J.C. Bernard (co-PI).
  • USDA – NRI.  “The Value of the “U.S.A.” Label on Retail Agricultural Products in Japan.” Sept. 1, 2005 – Aug. 31, 2008. Funds: $334,473. H.H. Peterson (PI), J.C. Bernard, J. Fox (co-PIs).
  • USDA - NRI.  “Experimental Investigation of Interactions in Willingness to Pay for Certified Organic and Non-Genetically Modified Foods.”  Sept. 1, 2003 - Aug. 31, 2007.  Funds: $116,911. Bernard J. (PI).

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Provision of Public Goods

Publications

  • Keisner, D.K., K.D. Messer, W.D. Schulze, and H. Zarghamee. Forthcoming. “Testing Social Preferences for an Economic “Bad”: An Artefactual Field Experiment” Scandinavian Journal of Economics.
  • Messer, K.D., G.L. Poe and W.D. Schulze. 2013. “The Value of Private Versus Public Risk and Pure Altruism: An Experimental Economics Test.” Applied Economics. 45(9): 1089-1097.
    [ abstract ]
    In 1996, Johannesson et al. published a paper entitled ‘The Value of Private Safety versus the Value of Public Safety’. Based on the preliminary evidence from a hypothetical contingent valuation study for public and private safety, these authors argue that consumers behave as ‘pure altruists’ who consider the cost of a program that might be imposed on other voters when they determine their maximum willingness-to-pay for public safety programs. The authors conclude that further empirical research in this area is warranted. This article presents a set of laboratory economics experiments to test Johannesson et al.’s conjecture under controlled conditions in which participants face an actual risk of financial loss. The laboratory results extend those of Johannesson et al.’s, providing strong evidence of pure altruism in coercive settings involving public risks.
    http://dx.doi.org/10.1080/00036846.2011.608645
  • Messer, K.D., G.L. Poe, D. Rondeau, W.D. Schulze and C. Vossler. 2010. “Social Preferences and Voting: An Exploration Using a Novel Preference Revealing Mechanism.” Journal of Public Economics 94(3-4): 308-317.
    [ abstract ]
    Public referenda are frequently used to determine the provision of public goods. As public programs have distributional consequences, a compelling question is what impact, if any, do social preferences have on voting behavior. This paper explores this issue using laboratory experiments wherein voting outcomes lead to a known distribution of net benefits across participants. Preferences are elicited using a novel Random Price Voting Mechanism (RPVM), which is more efficient in eliciting preferences than a dichotomous choice referendum but gives consistent results. Results suggest that social preferences, in particular a social efficiency motive, lead to economically meaningful deviations from selfish voting choices and increase the likelihood that welfare-enhancing programs are implemented.
  • Kotani, K., K.D. Messer, and W.D. Schulze. 2010. "Matching Grants and Charitable Giving: Why People Sometimes Provide a Helping Hand to Fund Environmental Goods" Agricultural and Resource Economics Review. 39(2):1-10.
    [ abstract ]
    Matching grants are a prevalent mechanism for funding environmental, conservation, and natural resource projects. However, economists have largely been silent regarding the potential benefits of these mechanisms at increasing voluntary contributions. To examine the behavioral responses to different match levels, this research uses controlled laboratory experiments with generically framed instructions and introduces a general-form matching-grant mechanism, referred to as the proportional contribution mechanism (PCM). Results show that contributions are positively correlated with both the match and the induced value of the public good even when a dominant strategy is free-riding. An implication of this partial demand revelation result is that manifestations of this type of 'helping hand' social preference should be counted in benefit-cost analysis.
  • Messer, K.D., H. Zarghamee, H.M. Kaiser and W.D. Schulze. 2007. "New Hope for the Voluntary Contribution Mechanism: The Effects of Framing and Context" Journal of Public Economics. 91(9):1783-1799.
    [ abstract ]
    This research examines how three common contextual factors can affect contributions in the linear voluntary contributions mechanism (VCM). Using business student subjects and a low marginal per capita rate of return, the results show that contributions in the last of ten rounds range from 18% for the traditional VCM with no initial cheap talk, no voting, and a status quo of not giving to 94% in a VCM with initial cheap talk, voting, and a status quo of giving. The results demonstrate that context can make the VCM produce sustained efficiencies similar to incentive-compatible public-good mechanisms.

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Research Funding

  • General University Research, University of Delaware, 2008-2009. "Can Context Effects Mitigate the Free-Riding Behavior that Causes Negative Externalities?" $6,000. K.D. Messer (PI).
  • National Science Foundation - jointly funded by the Economics Program and Decision, Risk and Management Sciences, 2004-2006. "An Experimental Economics Examination of Behavioral Anomalies, Group Decision Making, and the Provision of Public Goods." $220,535. ID#0418450. W.D. Schulze (PI), K.D. Messer, G. Poe, and H.M. Kaiser (co-PIs).

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Agricultural Policy

Publications

  • Messer, K.D., H.M. Kaiser, C. Payne, and B. Wansink. 2011. “Can Generic Advertising Alleviate Consumer Concerns Over Food Scares” Applied Economics: 43(12):1535-1549.
    [ abstract ]
    Consumers consistently express concern about the risk of new variant Creutzfeldt–Jakob Disease (nvCJD) from eating beef. Given several US cows infected with Bovine Spongiform Encephalopathy (BSE) (mad cow disease) and recent findings that the path of transmission of nvCJD remains unknown, the potential for a devastating scare hangs over the beef industry. This experimental research evaluates the ability of industry advertising messages to offset the effects of media messages related to the lack of food safety. Using a nonstudent subject pool, this research finds that beef industry advertising significantly alleviates US consumer safety concerns.
  • Bernard, J.C. and N. He. “Confounded by the Field: Bidding in Food Auctions when Field Prices are Increasing.” Agricultural and Resource Economics Review, 39(2010): 275-287.
  • Messer, K.D., H.M. Kaiser and W.D. Schulze. 2008. "The Problem of Free Riding in Voluntary Generic Advertising: Parallelism and Possible Solutions from the Lab" American Journal of Agricultural Economics 90(2):540-552.
    [ abstract ]
    Producers of many commodities pay for generic advertising, which is a public good for producers and, in cases like healthy foods, enhances social welfare. Though most programs were initially funded through the Voluntary Contribution Mechanism, many became mandatory to mitigate free riding. This experimental research simulates key economic and psychological details of these programs and produces donation results strikingly similar to a historic example. Because mandatory programs may be declared unconstitutional, the Provision Point Mechanism is tested as an alternative. This research also shows that refund-by-request donation mechanisms establish a status quo of contributing and reduce free riding.
  • Doyon, M., V. Simard, K.D. Messer, L.D. Tamini, and H.M. Kaiser. 2008. "An Experimental Analysis of Modifications to the Centralized Milk Quota Exchange System in Quebec." Canadian Journal of Agricultural Economics 56(1):295-312. (Received the Outstanding Journal Article Award for 2008 by the Canadian Agricultural Economics Society).
    [ abstract ]
    Using experimental economics, this paper tests the potential impacts of modifying the centralized quota exchange system in Quebec with the intent of decreasing the quota price while minimizing negative impacts on auction effectiveness. Two separate treatments are applied to a uniform price auction similar to that employed in Quebec. The first treatment is an exclusion (5% or 15%) of the highest buyer bids and seller offers. The second is a tax (2% or 10%) on all units offered for sale that remain unsold. Various combinations of the two treatments are also tested. The results suggest that exclusion of the highest bids and offers can decrease the price of the quota and that a 15% exclusion rate is more effective than a 5% rate. The tax alone has little impact on quota price. The combination of the two treatments generates a more marked reduction in both the number of exchanges and the price of the quota than when the tax or the exclusion is applied individually. However, the combination of treatments results in a greater loss of economic efficiency. In all cases, relatively small market price reductions are realized at the expense of substantial losses in economic efficiency.
  • Messer, K.D., H.M. Kaiser and G.L. Poe. 2007. "Voluntary Funding for Generic Advertising Using a Provision Point Mechanism: An Experimental Analysis of Option Assurance." Review of Agricultural Economics 29(3):612-631.
    [ abstract ]
    Given the uncertain legal status of generic advertising programs for agricultural commodities, alternative voluntary funding institutions are investigated that could provide a high level of benefits to producers. This experimental study simulates key economic and psychological factors that affect voluntary producer contributions to generic advertising. The results suggest that producer referenda play a critical role in increasing contributions and that producer surplus is maximized by a provision point mechanism instituted by producer referendum with thresholds ranging from 68% to 90%, and expected funding from 47% to 77% of the time, depending on the level of advertising effectiveness.
  • Messer, K.D., T.M. Schmit and H.M. Kaiser. 2005. "Optimal Institution Design for Generic Advertising: An Experimental Analysis." American Journal of Agricultural Economics87(4):1046-1060
    [ abstract ]
    Given the uncertain legal status of generic advertising programs for agricultural commodities, alternative voluntary funding institutions are investigated that could provide a high level of benefits to producers. This experimental study simulates key economic and psychological factors that affect voluntary producer contributions to generic advertising. The results suggest that producer referenda play a critical role in increasing contributions and that producer surplus is maximized by a provision point mechanism instituted by producer referendum with thresholds ranging from 68% to 90%, and expected funding from 47% to 77% of the time, depending on the level of advertising effectiveness.

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Research Funding

  • National Institute for Commodity Promotion and Evaluation, 2007-2008. "Assessing Consumer's Sensitivity and Willingness-To-Pay for Poultry and Eggs Given Different Production Methods." $15,000. K.D. Messer (PI).
  • National Institute for Commodity Promotion and Evaluation, 2006. "Assessing the Impact of Media Reports and Industry Food Safety Information on Consumer's Risk Attitudes and Willingness-To-Pay." $184,802. H.M. Kaiser (PI), K.D. Messer and D. Dong (co-PIs).
  • National Institute for Commodity Promotion and Evaluation, 2004. "Optimal Institutional Mechanisms for Funding Generic Advertising: An Experimental Analysis." $155,352. H. M. Kaiser (PI), K.D. Messer, D. Dong, and T. Schmit (co-PIs).

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