Embedding effect and the consequences of advanced disclosure: evidence from the valuation of cultural goods

This study revisits the embedding effect, a long-standing problem in the nonmarket valuation literature. The embedding effect was a popular research topic during the 1990s, especially following the Exxon Valdez oil spill in Alaska. It has resurfaced after a special issue of The Journal of Economic Perspectives in 2012 in which Jerry Hausmann asserts that among the three long-standing problems with contingent valuation, the embedding effect is the most challenging. In this study, we focus on how information disclosure regarding the nested structure of goods affects both the willingness to pay and the presence of the embedding effect. Our results suggest that the level of embedding can be reduced with a more complete description of the nested structure of the goods under valuation. Therefore, it is highly important for each valuation study to test whether sufficient information is provided on the goods’ nested structure to ensure that the relationships among the goods’ subsets are correctly understood by respondents. We show that by providing respondents with more high-quality information, it is possible to mitigate the embedding effect.