Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 189: Should We Trust Hypothetical Referenda? Test and Identification Problems
Fredrik Carlsson () and Olof Johansson-Stenman ()
Additional contact information
Fredrik Carlsson: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG
Olof Johansson-Stenman: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG
Abstract: In a paper published in the Journal of Political Economy, Cummings et al. experimentally compare hypothetical and real-money referenda. They reject the incentive compatibility hypothesis of hypothetical referenda. However, in a comment, Haab et al. claim that the hypothesis cannot be rejected if one corrects for heteroskedasticity. In this note we show that the methodology used by Haab et al. is flawed, and their conclusions unwarranted. Our results rather support the original conclusion that hypothetical referenda appears not to resemble real referenda (unless one has reasons to believe that the true variance is much larger in the hypothetical case). This paper outlines design and identification difficulties arising when statistically comparing real and hypothetical referenda.
Keywords: Hypothetical referenda; incentive compatibility; non-market valuation; identification
12 pages, First version: January 19, 2006. Revised: January 24, 2006.
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