1818: Consumer evaluation ofenvironmental and animal velfare labelling: Estimating the willingness to pay for different types of eggs

Andersen, Laura Mørch (2003) Consumer evaluation ofenvironmental and animal velfare labelling: Estimating the willingness to pay for different types of eggs . Paper presented at Enviroment, information, and consumer behavior, Frederiksdal, 28-29th -04-2003.

Summary

Marginal willingness to pay for eggs carrying different labels is estimated using
observed Danish purchase data on individual level. Among other things the labels
indicate environmental features and different levels of animal welfare for the hens that
produce the eggs. The data on eggs are part of a very comprehensive panel data set
covering household purchases of non-durables during a five year period. For each
family a wide range of background characteristics are available. Detailed data on eggs
are available during the one year period from July 1999 to June 2000 used in these
estimations, Compared to simple statistics, such as the average market share of different egg types, econometric estimations make it possible to disentangle the effect of labels from the effects of e.g. differences in prices. Discrete models such as the multinomial logit make it particularly simple to estimate the willingness to pay for different characteristics of goods, in this case different labels. Had the purpose been to estimate substitution effects, a continuous model would have been used instead.
The estimations are conducted using the new and flexible Mixed Multinomial Logit
model (MMNL) also known as Random Parameter Logit (RPL). Mixed multinomial
logit allows heterogeneity among households by letting the parameters of the household
utility functions be drawn from a common distribution instead of restricting them to be
identical for all households. Estimating the parameters of the distribution of the
parameters of the utility functions yields not only a measure of the marginal willingness
to pay for different types of eggs, but also a measure of the degree of heterogeneity
among the households.
The eggs are divided into battery eggs (‘buræg’), barn eggs (‘skrabe æg’), free-range
eggs (‘fritgående’) and organic eggs (‘økologiske’) and the marginal willingness to pay
for the three last types relative to battery eggs are estimated. The marginal willingness
to pay for different types of eggs turns out to vary whit the chain of stores in which the purchase is made. Econometric estimations using store-level data reveals that customers in some stores (e.g. Superbrugsen) are generally willing to pay for labels indicating environmental and animal friendly production methods, while customers in other stores (e.g. Bilka) are reluctant to do so. Combining data from many different stores leads to contra-intuitive results caused by the high level of heterogeneity among customers, prices and variety in the different stores.
It is found that models allowing the consumers’ evaluation of the different labels to vary with background characteristics, such as the geographical location of the household
residence, are significantly better than models ignoring background variables
completely. Models allowing the evaluation to vary with attitudes, such as attitude to
1 branded goods, are also significantly better than the model ignoring these effects. The
effect of the age of the main buyer is, in most cases, not significant.
It is reasonable to expect the value of different labels to vary between households.
Animal welfare may be very important to some households, but have little or no value
in other households. These differences are perceived as ‘heterogeneity of preferences’ in
the econometric model. The labels ‘barn eggs’ and ‘free-range eggs’ mainly indicates
increased animal welfare, whereas the ‘organic’ label indicates a more environmentally
friendly production as well as a higher level of animal welfare. Some households may
also perceive the organic eggs as being healthier than other egg types because the hens
are fed with organic feed. The heterogeneity of marginal willingness to pay for organic
eggs can therefore be induced by differences in the perception and evaluation of at least
three different attributes, whereas the heterogeneity of marginal willingness to pay for
barn and free-range eggs is expected to arise only from differences in perception and
evaluation of animal welfare. Data supports this hypothesis as the estimated
heterogeneity of marginal willingness to pay is generally higher for organic eggs than
for the two other egg types.
More information in working paper #6: “Consumer Evaluation of Environmental and
Animal Welfare Labelling: An Econometric Analysis on Panel Data Using Mixed
Multinomial Logit” at www.akf.dk/organicfoods

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