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WTP/WTA Disparity: Have We Been Observing Dynamic Values but Interpreting Them as Static?, The

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  • Catherine L. Kling
  • John A. List
  • Jinhua Zhao

Abstract

This study advances, and experimentally tests, a new explanation for the disparity between willingness to pay (WTP) and willingness to accept (WTA)-a dynamic neoclassical theory based on the presence of commitment costs. While to date neoclassical models have not explained the observed data patterns well, we find that the commitment cost theory is able to explain adequately the causes and severity of the WTP/WTA value disparity. In particular, using data gathered from an actual marketplace, even the most stringent of our theoretical conjectures-cases where WTP values are predicted to exceed WTA values-oftentimes are met.

Suggested Citation

  • 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.
    • Handle: RePEc:ias:cpaper:03-wp333
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    References listed on IDEAS

    as
    1. Zhao, Jinhua & Kling, Catherine L., 2001. "A new explanation for the WTP/WTA disparity," Economics Letters, Elsevier, vol. 73(3), pages 293-300, December.
    2. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 41-71.
    3. 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.
    4. List, John A & Shogren, Jason F, 1998. "The Deadweight Loss of Christmas: Comment," American Economic Review, American Economic Association, vol. 88(5), pages 1350-1355, December.
    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 1325-1348, December.
    6. Don L. Coursey & John L. Hovis & William D. Schulze, 1987. "The Disparity Between Willingness to Accept and Willingness to Pay Measures of Value," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 679-690.
    7. 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 554-566, September.
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    Citations

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    Cited by:

    1. Richard T. Carson, 2011. "Contingent Valuation," Books, Edward Elgar Publishing, number 2489.
    2. Venkatachalam, L., 2008. "Behavioral economics for environmental policy," Ecological Economics, Elsevier, vol. 67(4), pages 640-645, November.
    3. Bazzani, Claudia & Caputo, Vincenzina & Nayga, Rodolfo M. & Canavari, Maurizio, 2015. "Testing commitment cost in food choices: a non-hypothetical choice experiment approach," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205235, Agricultural and Applied Economics Association.
    4. Jay Corrigan & Catherine Kling & Jinhua Zhao, 2008. "Willingness to Pay and the Cost of Commitment: An Empirical Specification and Test," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 285-298, June.
    5. John K. Horowitz & Kenneth E. McConnell & James J. Murphy, 2013. "Behavioral foundations of environmental economics and valuation," Chapters, in: John A. List & Michael K. Price (ed.), Handbook on Experimental Economics and the Environment, chapter 4, pages 115-156, Edward Elgar Publishing.
    6. List, John A., 2004. "Substitutability, experience, and the value disparity: evidence from the marketplace," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 486-509, May.
    7. repec:ken:wpaper:0603 is not listed on IDEAS

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    More about this item

    Keywords

    field experiment; neoclassical theory; willingness to accept; willingness to pay; WTP/WTA disparity.;
    All these keywords.

    JEL classification:

    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources

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