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Estimating households' willingness to pay

Author

Listed:
  • Rachel Griffith

    (Institute for Fiscal Studies and University of Manchester)

  • Lars Nesheim

    (Institute for Fiscal Studies and University College London)

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.

Suggested Citation

  • Rachel Griffith & Lars Nesheim, 2010. "Estimating households' willingness to pay," CeMMAP working papers CWP24/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:24/10
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    File URL: http://cemmap.ifs.org.uk/wps/cwp2410.pdf
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    References listed on IDEAS

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    Cited by:

    1. Richard Friberg & Mark Sanctuary, 2018. "Market stealing and market expansion: an examination of product introductions in the organic coffee market," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(2), pages 287-303, April.
    2. Bonnet, Céline & Bouamra-Mechemache, Zohra & Réquillart, Vincent & Treich, Nicolas, 2020. "Viewpoint: Regulating meat consumption to improve health, the environment and animal welfare," Food Policy, Elsevier, vol. 97(C).
    3. Adelina Gschwandtner & Jose Eduardo Ribeiro & Cesar Revoredo-Giha & Michael Burton, 2021. "Combining Stated and Revealed Preferences for valuing Organic Chicken Meat," Studies in Economics 2113, School of Economics, University of Kent.
    4. Mika Kortelainen & Jibonayan Raychaudhuri & Beatrice Roussillon, 2016. "Effects Of Carbon Reduction Labels: Evidence From Scanner Data," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1167-1187, April.
    5. Matthew Polisson, 2011. "Goods Versus Characteristics: Dimension Reduction and Revealed Preference," Discussion Papers in Economics 11/44, Division of Economics, School of Business, University of Leicester, revised Dec 2011.
    6. Bergès, Fabian & Monier-Dilhan, Sylvette, 2013. "Do consumers buy organic food for sustainability or selfish reasons?," TSE Working Papers 13-372, Toulouse School of Economics (TSE), revised Aug 2013.
    7. Ribeiro, Jose Eduardo & Gschwandtner, Adelina & Revoredo-Giha, Cesar, 2021. "Estimation of a Hedonic Price Equation for Chicken Meat in the UK: Does the Organic Attribute Matter?," 2021 Conference, August 17-31, 2021, Virtual 314942, International Association of Agricultural Economists.
    8. Matthew Polisson, 2011. "Goods Versus Characteristics: Dimension Reduction and Revealed Preference," Discussion Papers in Economics 11/44, Division of Economics, School of Business, University of Leicester, revised Dec 2011.
    9. Griffith, Rachel & Nesheim, Lars, 2013. "Hedonic methods for baskets of goods," Economics Letters, Elsevier, vol. 120(2), pages 284-287.

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