Information and the Divergence between Willingness to Accept and Willingness to Pay (original) (raw)
Related papers
2008
This paper contributes to the widespread discussion of the sources of the divergence between WTA and WTP values. The paper reports on theoretical and empirical investigations which show that value and outcome uncertainty offer an explanation for this disparity. Given a set of hypotheses generated by the theory, the paper investigates the disparity using an inducedvalue experimental laboratory setting. The incentive-compatible Becker-DeGroot-Marshak mechanism is employed to elicit the WTP and WTA values. Two conclusions can be drawn from the empirical results. First, the WTA -WTP difference is generally increasing in both value and outcome uncertainty. Second, a re-contracting option reduces the disparity when it arises from value uncertainty. 1 Horowitz and McConnell (2002) report on an investigation of some 45 studies in which significant disparity between WTA and WTP values were reported. Similarly Plott and Zeiler (2005) report the results of several laboratory experiments investigating the disparity.
Value and outcome uncertainty as explanations for the WTA vs WTP disparity
Handbook on Experimental Economics and the Environment, 2013
This paper contributes to the widespread discussion of the sources of the divergence between WTA and WTP values. The paper reports on theoretical and empirical investigations which show that value and outcome uncertainty offer an explanation for this disparity. Given a set of hypotheses generated by the theory, the paper investigates the disparity using an inducedvalue experimental laboratory setting. The incentive-compatible Becker-DeGroot-Marshak mechanism is employed to elicit the WTP and WTA values. Two conclusions can be drawn from the empirical results. First, the WTA -WTP difference is generally increasing in both value and outcome uncertainty. Second, a re-contracting option reduces the disparity when it arises from value uncertainty. 1 Horowitz and McConnell (2002) report on an investigation of some 45 studies in which significant disparity between WTA and WTP values were reported. Similarly Plott and Zeiler (2005) report the results of several laboratory experiments investigating the disparity.
Understanding the WTA–WTP gap: Attitudes, feelings, uncertainty and personality
Journal of Economic Psychology, 2010
We present an experiment designed to study the psychological basis for the willingness to accept (WTA)-willingness to pay (WTP) gap. Specifically, we conduct a standard WTA-WTP economic experiment to replicate the gap and include in it 5 additional instruments to try to follow the psychological processes producing it. These instruments are designed to measure 5 psychological constructs we consider especially relevant: 1) attitudes, 2) feelings, 3) familiarity with the target good, 4) risk attitudes and 5) personality. Our results provide important new insights into the psychological foundations of the WTA-WTP disparity, which can be used to organize some major previous results and cast serious doubts on the claim that the gap might be just a consequence of inappropriate experimental practice.
A new meta-analysis on the WTP/WTA disparity
Journal of Environmental Economics and Management, 2014
This study reports a new meta-analysis of papers that elicit willingness-to-accept compensation (WTA) and willingness-to-pay (WTP) measures of value for the same good. We investigate the effects of type of good and several survey design features on the WTP/WTA disparity, measured as the logarithm of the ratio of mean WTA to mean WTP. Confirming Horowitz and McConnell's (2002) pioneering meta-analysis, we find the disparity is smaller for ordinary private goods than for public and non-market goods and that it is not simply an artifact of weak experimental or survey methods. Using multivariate regression, we find no significant difference between studies using student or non-student subjects and that the disparity is smaller when subjects have experience valuing the good in real markets or through repeated experimental trials. The disparity is smaller for goods with market substitutes, as proposed by Hanemann (1992). In contrast to Horowitz and McConnell, we find the disparity is significantly smaller in studies using incentivecompatible elicitation mechanisms. Studies published in 2002 and later show a smaller WTP/WTA disparity than studies published earlier, suggesting that stated-preference methods have improved.
Experiments on the difference between willingness to pay and willingness to …
Land Economics, 1993
ABSTRACT. "Willingness to pay" (WTP) and "willingness to accept" (WTA) measures of wel- fare change have been found to differ substan- tially when elicitedfrom surveys or experimental market transactions. Conventional economic theory suggests that the difference between ...
American Economic Review, 2011
Isoni, Loomes, and Sugden (2011) assert that Plott and Zeiler (2005) reported inaccurate results. Placing ILS's selective quotes into context demonstrates otherwise. Additionally, examining the data closely yields three conclusions. First, all mug data reject endowment effect theory. Second, lottery gaps are associated with unstable attitudes toward uncertainty, a finding consistent with PZ's (2005) lottery data description, explicit warnings about procedure limitations and the data supplement, which reports the lottery data and cautions. Third, lottery outcome beliefs are influenced by whether WTP or WTA is reported, suggesting that changing beliefs, as opposed to the shape of preferences, produce lottery gaps. (JEL C91)
Information, Preference Kinks, and the Endowment Eect
An artefact of experimental economics is the presence of perceptible, and sometimes quite large, divergences between an individual's willingness to pay (WTP) for a commodity and his or her willingness to accept (WTA). Because this phenomenon has been observed for common objects (cups, pens, pencils) that seemingly convey small, if not imperceptible, income e¤ects, it seems to contradict standard microeconomic intuition that there exists a single price at which an individual is indi¤erent between being a buyer and seller of a commodity. It has also been widely noted, and veri…ed experimentally (Shapira and Venezia ), that behavior in insurance markets contradicts expected-utility theory's prediction that risk-averse individuals should prefer insurance with deductibles to either no-deductible full insurance or insurance with very small deductibles (Mossin (1969)).
2005
Many empirical studies have discovered large discrepancies between willingness to pay (WTP) and willingness to accept (WTA) measures. This paper revisits the WTP and WTA divergence issue using a non−hypothetical market experiment, actual products, cash, and exchange in a market setting. We find WTA/WTP ratios that are significantly lower than most such studies. Authors thank Brit Grosskopf for helpful comments.
An Experimental Examination of Intrinsic Values as a Source of the WTA-WTP Disparity
1992
Recent experimental evidence has pro- vided strong support for Daniel Kahneman and Amos Tversky's (1979) notion of loss aversion: that losses are valued more highly than gains. This experimental evidence (see e.g., Jack L. Knetsch and John A. Sinden, 1984; Donald L. Coursey et al., 1987; Knetsch, 1989; Kahneman et al., 1990) sug- gests that the disparity between willingness to