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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

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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  • Andrea M. Leiter & Gerald J. Pruckner, "undated". "Proportionality of willingness to pay to small changes in risk - The impact of attitudinal factors in scope tests," Working Papers 2007-30, Faculty of Economics and Statistics, Universität Innsbruck.
    • Handle: RePEc:inn:wpaper:2007-30
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    3. D. Gyrd‐Hansen & T. Kjær & J. S. Nielsen, 2012. "Scope insensitivity in contingent valuation studies of health care services: should we ask twice?," Health Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 101-112, February.
    4. George Parsons & Kelley Myers, 2017. "Fat tails and truncated bids in contingent valuation: an application to an endangered shorebird species," Chapters, in: Daniel McFadden & Kenneth Train (ed.), Contingent Valuation of Environmental Goods, chapter 2, pages 17-42, Edward Elgar Publishing.
    5. Olschewski, Roland & Bebi, Peter & Teich, Michaela & Wissen Hayek, Ulrike & Grêt-Regamey, Adrienne, 2012. "Avalanche protection by forests — A choice experiment in the Swiss Alps," Forest Policy and Economics, Elsevier, vol. 17(C), pages 19-24.
    6. Kevin Haninger & James K. Hammitt, 2011. "Diminishing Willingness to Pay per Quality‐Adjusted Life Year: Valuing Acute Foodborne Illness," Risk Analysis, John Wiley & Sons, vol. 31(9), pages 1363-1380, September.
    7. Oerlemans, Leon A.G. & Chan, Kai-Ying & Volschenk, Jako, 2016. "Willingness to pay for green electricity: A review of the contingent valuation literature and its sources of error," Renewable and Sustainable Energy Reviews, Elsevier, vol. 66(C), pages 875-885.
    8. Christoph Rheinberger, 2011. "A Mixed Logit Approach to Study Preferences for Safety on Alpine Roads," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(1), pages 121-146, May.
    9. Octavio Fernández-Amador & Josef Baumgartner & Jesús Crespo-Cuaresma, 2010. "Milking The Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria," Working Papers 2010-21, Faculty of Economics and Statistics, Universität Innsbruck.
    10. John C. Whitehead & O. Ashton Morgan & William L. Huth & Gregory S. Martin & Richard Sjolander, 2012. "Willingness-to-Pay for Oyster Consumption Mortality Risk Reductions," Working Papers 12-07, Department of Economics, Appalachian State University.
    11. Martin Gächter & Engelbert Theurl, 2010. "Health Status Convergence at the Local Level: Empirical Evidence from Austria," Working Papers 2010-23, Faculty of Economics and Statistics, Universität Innsbruck, revised Mar 2011.
    12. Christoph Rheinberger, 2013. "Learning from the past: statistical performance measures for avalanche warning services," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 65(3), pages 1519-1533, February.
    13. Rollins, Kimberly S. & Kobayashi, Mimako, 2010. "Embedding a Field Experiment in Contingent Valuation to Measure Context-Dependent Risk Preferences: An Application to Wildfire Risk," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61870, Agricultural and Applied Economics Association.
    14. John C. Whitehead & O. Ashton Morgan & William L. Huth & Gregory S. Martin & Richard Sjolander, 2020. "Altruistic and Private Values For Saving Lives With an Oyster Consumption Safety Program," Risk Analysis, John Wiley & Sons, vol. 40(11), pages 2413-2426, November.
    15. Marija Bockarjova & Piet Rietveld & Erik T. Verhoef, 2012. "Scale, Scope and Cognition: Context Analysis of Multiple Stated Choice Experiments on the Values of Life and Limb," Tinbergen Institute Discussion Papers 12-046/3, Tinbergen Institute.

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    More about this item

    Keywords

    Contingent valuation; willingness to pay; scope test; sensitivity of WTP.;
    All these keywords.

    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 and their Management; Global Warming

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