Modelling asymmetric preferences for water quality in choice experiments with individual-specific status quo alternatives

The use of scientific and uniform measures of environmental conditions for the status quo alternative in discrete choice experiments is not always feasible and may bias welfare estimates if respondents’ perceptions diverge from the provided current state. This paper presents a choice experiment with individual-specific status quo alternatives, defined based on respondents’ own assessment of current and future environmental conditions. We test the properties of prospect theory and examine preference heterogeneity, asymmetry and nonlinearity for eutrophication-related water quality attributes. We find consistent evidence of asymmetric preferences and loss aversion for the water quality attributes, with the value of losses being larger than corresponding gains. In our case, a symmetric modelling approach results in biased welfare estimates. However, there is no evidence of diminishing marginal values. The study demonstrates that individual and perceptions-based status quo alternatives are a feasible option in choice experiments for readily-observable and familiar goods such as water quality. Based on the findings, water resource policies that focus on preventing the deterioration of water quality and target blue–green algal blooms and water clarity lead to higher welfare gains. Despite the use of perceived reference water quality, the results allow for identifying the value of changes in scientifically measured water quality and can be used to support water resource management.