The Theory Of The Utility Function

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Table 4 shows the results of restricted and unrestricted choice models for Old Saybrook sample. The unrestricted models allow for systematic variations in estimated mean parameter (mean marginal utility) for all attributes except the Cost that are associated with variations in perceived or actual risks of flooding to private homes. Since the econometric model used in the estimation of the utility function is a RPL model, allowing for the main effects interactions with measures of flood-caused risks to private homes would capture the heterogeneity around the means related to variations in the risk measures. Specification of the main effects parameters across all models is identical. Coefficients on the interaction terms in the unrestricted models are specified as fixed. All resulting models are statistically significant at p < 0.0001. The signs on main effects coefficients across all models agree with prior expectations and are identical, with the exception of the estimated coefficients on Soft, where the sign is positive in the unrestricted models incorporating objective measures of flood risks to private homes. Mean estimates of marginal utility for all attributes are statistically significant across all models except for Soft and Seawalls. Mean marginal utility obtained from wetlands protection is statistically significant only in the unrestricted model adopting zone as a measure of risk to private property. Models results suggest the presence of significant heterogeneity around the mean for all attributes except for hard, which seems to be homogenously disfavored as a protection approach relative to an adaptation approach that emphasizes neither hard or soft techniques. Coefficients of more relevance to the study’s investigat... ... middle of paper ... ...in perceived or actual flood-related risks to private homes. Across all measures of flood-related risks to private homes, the difference in WTP for Neither is statistically significant at least at 5%level. The annual WTP in support of the implementation of a coastal adaptation policy by a household is about $50 higher than a comparable household with ten percent lower perceived likelihood that their home will sustain damage due to flooding. A household whose home is located within a flood zone is willing to contribute $152 higher towards the implementation of an adaptation policy. It is worth mentioning that this difference may not be entirely attributable to differences in perceived risks or actual vulnerability levels, rather, there might be other confounding factors that simultaneously influence the welfare estimates and risk measures (e.g socioeconomic factors).
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