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Estimating households' willingness to pay

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Author Info

  • Rachel Griffith

    ()
    (Institute for Fiscal Studies and University College London)

  • Lars Nesheim

    ()
    (Institute for Fiscal Studies)

Abstract

The recent literature has brought together the characteristics model of utility and classic revealed preference arguments to learn about consumers' willingness to pay. We incorporate market pricing equilibrium conditions into this setting. This allows us to use observed purchase prices and quantities on a large basket of products to learn about individual household's willingness to pay for characteristics, while maintaining a high degree of flexibility and also avoiding the biases that arise from inappropriate aggregation. We illustrate the approach using scanner data on food purchases to estimate bounds on willingness to pay for the organic characteristic. We combine these estimates with information on households' stated preferences and beliefs to show that on average quality is the most important factor affecting bounds on household willingness to pay for organic, with health concerns coming second, and environmental concerns lagging far behind.

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Bibliographic Info

Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP24/10.

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Date of creation: Aug 2010
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Handle: RePEc:ifs:cemmap:24/10

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References

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  1. Richard Blundell & Martin Browning & Ian Crawford, 2002. "Nonparametric Engel Curves and Revealed Preference," CAM Working Papers 2002-04, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  2. Laura Blow & Martin Browning & Ian Crawford, 2005. "Revealed preference analysis of characteristics models," CAM Working Papers 2005-04, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  3. Rachel Griffith & Ephraim Leibtag & Andrew Leicester & Aviv Nevo, 2009. "Consumer Shopping Behavior: How Much Do Consumers Save?," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 99-120, Spring.
  4. Beckert, Walter, 2010. "A micro-econometric approach to geographic market definition in local retail markets: Demand side considerations," Economics Discussion Papers 2010-16, Kiel Institute for the World Economy.
  5. Pierre-Andre Chiappori & Robert McCann & Lars Nesheim, 2007. "Hedonic price equilibria, stable matching, and optimal transport: equivalence, topology, and uniqueness," CeMMAP working papers CWP23/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. James J. Heckman & Rosa L. Matzkin & Lars Nesheim, 2010. "Nonparametric Identification and Estimation of Nonadditive Hedonic Models," Econometrica, Econometric Society, vol. 78(5), pages 1569-1591, 09.
  7. Deaton, Angus, 1987. "Estimation of own- and cross-price elasticities from household survey data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 7-30.
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Cited by:
  1. Matthew Polisson, 2012. "Goods versus characteristics: dimension reduction and revealed preference," IFS Working Papers W12/02, Institute for Fiscal Studies.
  2. Griffith, Rachel & Nesheim, Lars, 2013. "Hedonic methods for baskets of goods," Economics Letters, Elsevier, vol. 120(2), pages 284-287.
  3. Matthew Polisson, 2011. "Goods Versus Characteristics: Revealed Preference Procedures for Nested Models," Economics Series Working Papers 531, University of Oxford, Department of Economics.

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