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Proportionality of willingness to pay to small changes in risk - The impact of attitudinal factors in scope tests

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Andrea M. Leiter ()
Gerald J. Pruckner ()

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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, 1,005 respondents were asked their willingness to pay (WTP) for preventing an increase in the risk of being killed in an avalanche of 1/42,500 and 3/42,500 respectively. WTP for the higher variation in risk is significantly greater than WTP for the lower risk change. We find evidence that those respondents who have had personal experience of avalanches in recent years combine the information about future risk increase - as provided in the survey - with the observed number of fatal avalanche accidents in the past. Proportionality of WTP holds if such prior experience is taken into account and if attitudinal factors in scope tests are controlled for.

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Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2007-30.

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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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