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Scope insensitivity – behavioral elucidation or mental accounting?

  • Economics Discussion Papers
  • July 6, 2022
  • Kavita Sardana, Srijita Ghosh

The scope sensitivity test is used to validate value estimates of non-market environmental goods and services derived from the contingent valuation method. The absence of economic scope points to the invalid value estimates. Recent studies have attributed scope insensitivity to affective, cognitive, and behavioral factors. In this study, we extend the behavioral insights in explaining scope insensitivity by incorporating insights from the theory of mental accounting. Our empirical results indicate that if subjects consider the environmental good as part of their recreational budget within a mental accounting framework, we can explain the scope insensitivity with otherwise standard preference.

Study at Ashoka

Study at Ashoka