Academic journal article Journal of Agricultural and Applied Economics

Use of Spike Models in Measuring Consumers' Willingness to Pay for Non-GM Oil

Academic journal article Journal of Agricultural and Applied Economics

Use of Spike Models in Measuring Consumers' Willingness to Pay for Non-GM Oil

Article excerpt

In this paper, Chinese consumers' preferences and their willingness to pay (WTP) for non-genetically modified (GM) vegetable oil were elicited by a payment card approach. In addition to the conventional model, spike models, which were originally developed to evaluate public goods, were adopted in this paper. These spike models recognize the possibility of zero WTP and provide opportunities to analyze two correlated decision stages: whether to pay a premium for non-GM oil and how much the premium is. Results show that consumers behaved consistently in the two decision stages and there is a premium associated with non-GM oil.

Key Words: Chinese consumers, non-genetically modified oil, spike models, willingness to pay

JEL Code: Q13, D12, C25

The introduction of genetically modified (GM) food into the market creates a significant amount of controversy. Concerns have been raised by different social entities regarding various aspects including human health, environment, ethics, and many others (Rousu et al. 2004). GM food and food produced through conventional agriculture are likely to coexist in the market for a foreseeable long period. One important issue is to know how consumers' view this dual market and how much they are willing to pay for non-GM products to avoid the uncertainties associated with GM food. China has one of the largest food demands in the world. Together with the United States, Canada, and Argentina, it contributes more than 95% of the world's GM food production (ISAAA). However, research on Chinese consumers' preferences and willingness to pay (WTP) for non-GM food is scarce. Using a recent survey data on Chinese consumers' WTP for non-GM vegetable oil, this study provides insights into the issue.

Although the Chinese government has recently begun to require mandatory labeling of GM products, the two types of products have not yet appeared in the market as competitors (Huang and Wang). The method of contingent valuation (CV) has been widely applied to welfare analysis of goods that are either nonmarketable or do not currently exist in the market, such as non-GM vegetable oil being studied in this paper. This study uses the payment card WTP elicitation approach, which may reduce the inconsistency associated with multiple-bounded WTP questions (McFadden 1994). In this paper, endogenous spike models are adopted to analyze Chinese consumers' preference and WTP for non-GM oil. The spike model had previously been applied only to public goods such as improvement of environmental quality. This paper shows that the model can be used in the settings of private goods as well, and it provides an alternative way to explain consumers' WTP for non-GM vegetable oil. The strength of the model resides in its ability to allow consumers to exhibit true zero WTP for non-GM oil. The validity of the model is assessed in two different assumptions on the true WTP distribution (i.e., normal and Gumbel distributions). The spike model can also be used to explain what factors contribute to consumers' decisions to pay a premium for non-GM oil and what factors determine the amount they are willing to pay.

Theory

In a closed-ended WTP question, for any value that respondents have indicated or agreed to pay, their true WTP is assumed to be located above that value and below the next available value, if it exists (Hanemann and Kaninnen). This implies that when respondents refuse to pay any positive amount, their WTP is assumed to be between zero and the lowest value in the bidding range. Nevertheless, there are many possible reasons that respondents may not hold a positive value for the goods in question. For the case of vegetable oil, if respondents believe that GM and non-GM oil are identical in every aspect, they may not be willing to pay any additional amount for non-GM oil. On the other hand, given the uncertainties associated with GM food, especially those on human health, respondents who are not clear on these issues may hesitate to bid and in this case, a zero bid seems to be their best choice. …

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