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Proportionality of Willingness to Pay to Small Risk Changes – The Impact of Attitudinal Factors in Scope Tests

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Author Info
Andrea M. Leiter (alpS GmbH - Center for Natural Hazard Management)
Gerald J. Pruckner (University Linz)

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Abstract

Sensitivity (proportionality) of willingness to pay to (small) risk changes is often used as a criterion to test for valid measures of economic preferences. In a contingent valuation (CV) study conducted in Austria in February 2005 1,005 respondents were asked their willingness to pay (WTP) for preventing an increase in risk by 1/42,500 and 3/42,500, respectively. WTP for the higher risk variation is significantly higher than WTP for the lower risk change. We find evidence that those respondents who have personal experience with avalanches combine the information about future risk increase, provided in the survey, with the observed number of mortal avalanche accidents in the past. The proportionality of WTP holds if such prior experiences are taken into account and the influence of attitudinal factors in scope tests are controlled for.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.90.

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Date of creation: Jun 2006
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Handle: RePEc:fem:femwpa:2006.90

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Related research
Keywords: Contingent Valuation; Willingness to Pay; Scope Test; Sensitivity of WTP;

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters

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