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Willingness to pay towards a public good: how does a refund option affect stated values?

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  • Stephen O'Neill
  • Lava Prakash Yadav

Abstract

Mandatory taxes and/or voluntary contributions are commonly adopted as the payment vehicle when eliciting willingness to pay (WTP) in environmental valuation studies. While mandatory taxes may arouse negative feelings, voluntary contributions may lead to strategic behaviour (over bidding) or free riding (under bidding). In this paper, we explore an alternative payment vehicle which avoids the draconian undertones associated with taxes and may be more incentive compatible than a voluntary contribution - a tax that incorporates a refund option. The template for such a payment vehicle is the value added tax charged to tourists in Ireland, but which can be reclaimed on exiting the country. In the context of raising public funds to support the conservation of rural countryside landscape, a comparison is made between the elicited WTP via a mandatory tax and that elicited via the alternative payment method incorporating a refund option. While we observe similar participation rates between the two payment methods, the refund option reveals a higher stated WTP.

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  • Stephen O'Neill & Lava Prakash Yadav, 2016. "Willingness to pay towards a public good: how does a refund option affect stated values?," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 59(2), pages 342-359, February.
    • Handle: RePEc:taf:jenpmg:v:59:y:2016:i:2:p:342-359
    DOI: 10.1080/09640568.2015.1010683
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