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Substitutability, Experience, and the Value Disparity: Evidence from the Marketplace

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Author Info
John A. List

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Abstract

Recent empirical evidence suggests that important disparities exist between willingness to pay and compensation demanded for the same good. These results, which clearly contradict closely held economic doctrines, have led some influential commentators to call for an entirely new economic paradigm to displace conventional neoclassical theory. This study examines the generality of these experimental findings by going to a well-functioning marketplace and examining more than 350 individual decisions across two incentive-compatible elicitation mechanisms. The data suggest that behavior of individuals with intense experience approaches neoclassical predictions: any observed WTA/WTP disparity amongst this group is negligible.

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Paper provided by The Field Experiments Website in its series Framed Field Experiments with number 0048.

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Length: 24 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:feb:framed:0048

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Related research
Keywords: WTP/WTA disparity; Field experiment; Marketlike experience;

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Find related papers by JEL classification:
Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply (the Commons)
Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources

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. List, John A & Shogren, Jason F, 1998. "The Deadweight Loss of Christmas: Comment," American Economic Review, American Economic Association, vol. 88(5), pages 1350-55, December. [Downloadable!] (restricted)
  2. 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)
  3. Coursey, Don L & Hovis, John L & Schulze, William D, 1987. "The Disparity between Willingness to Accept and Willingness to Pay Measures of Value," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 679-90, August. [Downloadable!] (restricted)
  4. Catherine L. Kling & John A. List & Jinhua Zhao, 2003. "WTP/WTA Disparity: Have We Been Observing Dynamic Values but Interpreting Them as Static?, The," Center for Agricultural and Rural Development (CARD) Publications 03-wp333, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
    Other versions:
  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. John A. List, 2003. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," NBER Working Papers 9736, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Horowitz, John K. & McConnell, Kenneth E., 2002. "A Review of WTA/WTP Studies," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 426-447, November. [Downloadable!] (restricted)
  9. Knez, Peter & Smith, Vernon L & Williams, Arlington W, 1985. "Individual Rationality, Market Rationality, and Value Estimation," American Economic Review, American Economic Association, vol. 75(2), pages 397-402, May. [Downloadable!] (restricted)
  10. Jack Knetsch & Fang-Fang Tang & Richard Thaler, 2001. "The Endowment Effect and Repeated Market Trials: Is the Vickrey Auction Demand Revealing?," Experimental Economics, Springer, vol. 4(3), pages 257-269, December. [Downloadable!] (restricted)
  11. Morrison, Gwendolyn C, 1997. "Resolving Differences in Willingness to Pay and Willingness to Accept: Comment," American Economic Review, American Economic Association, vol. 87(1), pages 236-40, March. [Downloadable!] (restricted)
  12. Kolstad, Charles D. & Guzman, Rolando M., 1999. "Information and the Divergence between Willingness to Accept and Willingness to Pay," Journal of Environmental Economics and Management, Elsevier, vol. 38(1), pages 66-80, July. [Downloadable!] (restricted)
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  13. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February. [Downloadable!] (restricted)
  14. 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)
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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. Makokha, Stella Nabwile & Karugia, Joseph & Staal, Steve & Oluoch-Kosura, Willis, 2006. "Valuation of Cow Attributes by Conjoint Analysis: A Case Study in Western Kenya," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25752, International Association of Agricultural Economists. [Downloadable!]
  2. Edward J. Lopez & W. Robert Nelson, 2005. "The Endowment Effect in a Public Good Experiment," Experimental 0512001, EconWPA. [Downloadable!]
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