Incentive compatibility and procedural invariance testing of the one-and-one half-bound dichotomous choice elicitation method: distinguishing strategic behaviour from the anchoring heuristic

Abstract

The contingent valuation method for estimating willingness to pay for public goods typically adopts a single referendum question format which is statistically inefficient. As an alternative, Cooper, Hanemann and Signorello (2002) propose the ‘one-and-one-half bound’ (OOHB) format allowing researchers to question respondents about both a lower and higher limit upon project costs, thereby securing substantial statistical efficiency gains. These bounds are presented prior to the elicitation of responses thereby avoiding the negative surprise induced by an unanticipated second question. However, this approach conflicts with the Gibbard- Satterthwaite result that only a single referendum format question is incentive compatible. The OOHB method may therefore be liable to strategic behaviour or reliance upon the anchoring heuristic observed in other repeated response elicitation formats. In a first formal test of the method we show that it fails crucial tests of procedural invariance and induces strategic behaviour amongst responses.