This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Willingness-to-Pay, Compensating Variation, and the Cost of Commitment

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Jinhua Zhao
Catherine L. Kling () (Center for Agricultural and Rural Development (CARD))

Additional information is available for the following registered author(s):

Abstract

The authors present a dynamic model of an agent's decision to purchase or sell a good under the following conditions: uncertainty, irreversibility, and learning over time. As the authors show, an agent's willingness-to-pay (WTP) is influenced by both the intrinsic value of the good and the commitment cost associated with delaying the decision until more information is available. Consequently, the standard Hicksian equivalence between WTP and compensating and equivalent variation no longer holds. This finding has important practical implications because it implies that observed WTP values are not always appropriate for welfare analysis.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.card.iastate.edu/publications/DBS/PDFFiles/00wp251.pdf
File Format: application/pdf
File Function: Full Text
Download Restriction: no
File URL: http://www.card.iastate.edu/publications/synopsis.aspx?id=300
File Format: text/html
File Function: Online Synopsis
Download Restriction: no

Publisher Info
Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 00-wp251.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Aug 2000
Date of revision:
Handle: RePEc:ias:cpaper:00-wp251

Contact details of provider:
Postal: 578 Heady Hall, Ames, Iowa 50011-1070
Phone: (515) 294-1183
Fax: (515) 294-6336
Email:
Web page: http://www.card.iastate.edu/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords:

Other versions of this item:

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. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr. [Downloadable!] (restricted)
  2. Kolstad, Charles D., 1996. "Fundamental irreversibilities in stock externalities," Journal of Public Economics, Elsevier, vol. 60(2), pages 221-233, May. [Downloadable!] (restricted)
  3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October. [Downloadable!] (restricted)
  4. Epstein, Larry G, 1980. "Decision Making and the Temporal Resolution of Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 269-83, June. [Downloadable!] (restricted)
  5. 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)
  6. Carl Shapiro, 1983. "Optimal Pricing of Experience Goods," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 497-507, Autumn. [Downloadable!] (restricted)
  7. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August. [Downloadable!] (restricted)
  8. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  9. Zhao, Jinhua & Zilberman, David & Heiman, Amir & McWilliams, Bruce, 2002. "Modeling Money-back Guarantees as Financial Options," Staff General Research Papers 5206, Iowa State University, Department of Economics.
  10. 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)
  11. 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)
  12. Arrow, Kenneth J & Fisher, Anthony C, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 312-19, May. [Downloadable!] (restricted)
  13. Bockstael, Nancy E & McConnell, Kenneth E, 1983. "Welfare Measurement in the Household Production Framework," American Economic Review, American Economic Association, vol. 73(4), pages 806-14, September. [Downloadable!] (restricted)
  14. Zhao, Jinhua & Kling, Catherine L., 1999. "Real Options and the WTP/WTA Disparity," Staff General Research Papers 1313, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  15. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December. [Downloadable!] (restricted)
  16. 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)
  17. Ronald G. Cummings & Laura O. Taylor, 1999. "Unbiased Value Estimates for Environmental Goods: A Cheap Talk Design for the Contingent Valuation Method," American Economic Review, American Economic Association, vol. 89(3), pages 649-665, June. [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. Baylis, Kathy & Vercammen, James, 2006. "Scientific Uncertainty and Climate Change Policy," 2006 Annual meeting, July 23-26, Long Beach, CA 21267, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. 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!]
  3. Jay Corrigan & Catherine Kling & Jinhua Zhao, 2008. "Willingness to Pay and the Cost of Commitment: An Empirical Specification and Test," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(2), pages 285-298, June. [Downloadable!] (restricted)
  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, 2005. "Is the Experimental Auction a Dynamic Market?," Working Papers 0501, Kenyon College, Department of Economics. [Downloadable!]
    Other versions:
  6. Zhao, Jinhua & Kling, Catherine L., 2002. "Environmental Valuation under Dynamic Consumer Behavior," Staff General Research Papers 2106, Iowa State University, Department of Economics. [Downloadable!]
  7. Jinhua Zhao & Catherine L. Kling, 2002. "Environmental Valuation under Dynamic," Center for Agricultural and Rural Development (CARD) Publications 02-wp292, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
Statistics
Access and download statistics

Did you know? Use the JEL tree to browse through the database by subfields.

This page was last updated on 2009-12-7.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.