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Endowment effect theory, prediction bias and publicly provided goods: an experimental study

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  • Ivo Bischoff

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Abstract

Many studies report on a systematic disparity between the willingness to pay for a certain good (WTP) and the willingness to accept retribution payments in exchange for giving up this good (WTA). Thaler (1980) employs prospect theory to explain this disparity. The literature contains two different interpretations of his endowment effect theory. Accordingly, the disparity is caused either by the disutility from parting with one's endowment and/or by an extra utility from ownership which is not anticipated by individuals who are not endowed with the good. So far, the empirical evidence on the applicability of endowment effect theory is limited to private goods. The current paper reports on an experiment which finds a significant ownership utility effect for a publicly provided good. This result indicates that prospect theory applies to publicly provided goods even though consumers do not have exclusive property rights. --

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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 39 (2008)
Issue (Month): 3 (March)
Pages: 283-296

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Handle: RePEc:kap:enreec:v:39:y:2008:i:3:p:283-296

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Web page: http://www.springerlink.com/link.asp?id=100263

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Keywords: Endowment effect; Experiment; Loss aversion; Publicly Provided goods; H40; H43; Q51; C92;

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References

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  1. Biel, Anders & Johansson-Stenman, Olof & Nilsson, Andreas, 2006. "Emotions, Morality and Public Goods: The WTA-WTP Disparity Revisited," Working Papers in Economics 193, University of Gothenburg, Department of Economics.
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  3. 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.
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  5. Bischoff, Ivo, 2006. "Endowment effect theory, prediction bias and publicly provided goods – an experimental study," Finanzwissenschaftliche Arbeitspapiere 75, Justus Liebig University Giessen, Fachbereich Wirtschaftswissenschaften.
  6. John List, 2004. "Neoclassical theory versus prospect theory: Evidence from the marketplace," Framed Field Experiments 00174, The Field Experiments Website.
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  17. Gwendolyn Morrison, 1997. "Willingness to pay and willingness to accept: some evidence of an endowment effect," Applied Economics, Taylor & Francis Journals, vol. 29(4), pages 411-417.
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Cited by:
  1. Bischoff, Ivo, 2006. "Endowment effect theory, prediction bias and publicly provided goods – an experimental study," Finanzwissenschaftliche Arbeitspapiere 75, Justus Liebig University Giessen, Fachbereich Wirtschaftswissenschaften.
  2. J. DeShazo & Trudy Cameron & Manrique Saenz, 2009. "The Effect of Consumers’ Real-World Choice Sets on Inferences from Stated Preference Surveys," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 42(3), pages 319-343, March.

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