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Despairing Over Disparities: Explaining the Difference Between Willingness to Pay and Willingness to Accept

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Author Info
Carol Mansfield ()
Abstract

This paper examines the three major explanations for the disparity between willingness-to-pay (WTP) and willingness-to-accept (WTA) observed in contingent value surveys and laboratory experiments: a belief that the results must be biased in some fashion, Hanemann's (1991) substitutes hypothesis, and the loss aversion model proposed by Tversky and Kahneman (1991). Starting from the assumption that individuals make utility maximizing choices, we develop structural equations that yield parametric tests of the hypotheses within a single, non-experimental framework. The approach is flexible enough to incorporate a variety of functional form and distributional assumptions and can be applied to either data from either open-ended bids or dichotomous choice questions. The usefulness of the approach is demonstrated using data from a survey that asked both WTP and WTA questions. The results provide weak support for loss aversion. Copyright Kluwer Academic Publishers 1999

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File URL: http://hdl.handle.net/10.1023/A:1008246228773
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Publisher Info
Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 13 (1999)
Issue (Month): 2 (March)
Pages: 219-234
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Handle: RePEc:kap:enreec:v:13:y:1999:i:2:p:219-234

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Related research
Keywords: contingent valuation survey; loss aversion; willingness-to-accept; willingness-to-pay;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Hanemann, W Michael, 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?," American Economic Review, American Economic Association, vol. 81(3), pages 635-47, June. [Downloadable!] (restricted)
  2. Shogren, Jason F. & Seung Y. Shin & Dermot J. Hayes & James B. Kliebenstein, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," American Economic Review, American Economic Association, vol. 84(1), pages 255-70, March.
  3. repec:att:wimass:19939 is not listed on IDEAS
  4. Hartman, Raymond S & Doane, Michael J & Woo, Chi-Keung, 1991. "Consumer Rationality and the Status Quo," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 141-62, February. [Downloadable!] (restricted)
  5. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December. [Downloadable!] (restricted)
  6. Knetsch, Jack L, 1989. "The Endowment Effect and Evidence of Nonreversible Indifference Curves," American Economic Review, American Economic Association, vol. 79(5), pages 1277-84, December. [Downloadable!] (restricted)
  7. Viscusi, W Kip & Evans, William N, 1990. "Utility Functions That Depend on Health Status: Estimates and Economic Implications," American Economic Review, American Economic Association, vol. 80(3), pages 353-74, June. [Downloadable!] (restricted)
  8. Bohm, Peter, 1984. "Revealing demand for an actual public good," Journal of Public Economics, Elsevier, vol. 24(2), pages 135-151, July. [Downloadable!] (restricted)
  9. Hoehn, John P. & Randall, Alan, 1987. "A satisfactory benefit cost indicator from contingent valuation," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 226-247, September. [Downloadable!] (restricted)
  10. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November. [Downloadable!] (restricted)
  11. Wiktor L. Adamowicz & Vinay Bhardwaj & Bruce Macnab, 1993. "Experiments on the Difference between Willingness to Pay and Willingness to Accept," Land Economics, University of Wisconsin Press, vol. 69(4), pages 416-427. [Downloadable!] (restricted)
  12. Brookshire, David S & Coursey, Don L, 1987. "Measuring the Value of a Public Good: An Empirical Comparison of Elicitation Procedures," American Economic Review, American Economic Association, vol. 77(4), pages 554-66, September. [Downloadable!] (restricted)
  13. Randall, Alan & Stoll, John R, 1980. "Consumer's Surplus in Commodity Space," American Economic Review, American Economic Association, vol. 70(3), pages 449-55, June. [Downloadable!] (restricted)
  14. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Corrigan, Jay, 2001. "The Effect of Future Availability of Information on Willingness to Pay," Staff General Research Papers 2023, Iowa State University, Department of Economics. [Downloadable!]
  2. Jay Corrigan & Catherine L. Kling & Jinhua Zhao, 2003. "Dynamic Formation of Willingness to Pay: An Empirical Specification and Test , The," Center for Agricultural and Rural Development (CARD) Publications 03-wp327, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
  3. Corrigan, Jay R. & Kling, Catherine L. & Zhao, Jinhua, 2003. "Dynamic Willingness to Pay: An Empirical Specification and Test," Staff General Research Papers 10220, Iowa State University, Department of Economics.
  4. Jay Corrigan, 2001. "Effect of Future Availability of Information on Willingness to Pay, The," Center for Agricultural and Rural Development (CARD) Publications 01-wp290, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
  5. Jay R. Corrigan & Catharine L. Kling & Jinhua Zhao, 2006. "The Dynamic Formation of Willingness to Pay: An Empirical Specification and Test," Working Papers 0603, Kenyon College, Department of Economics. [Downloadable!]
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