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

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Author Info
Kling, Catherine L.
List, John A.
Zhao, Jinhua

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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. Keywords: field experiment, neoclassical theory, willingness to accept, willingness to pay, WTP/WTA disparity.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10381.

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Date of creation: 20 May 2003
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Handle: RePEc:isu:genres:10381

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. List, John A & Shogren, Jason F, 1998. "The Deadweight Loss of Christmas: Comment," American Economic Review, American Economic Association, vol. 88(5), pages 1350-55, December. [Downloadable!] (restricted)
  2. Hanemann, W Michael, 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?," American Economic Review, American Economic Association, vol. 81(3), pages 635-47, June. [Downloadable!] (restricted)
  3. Coursey, Don L & Hovis, John L & Schulze, William D, 1987. "The Disparity between Willingness to Accept and Willingness to Pay Measures of Value," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 679-90, August. [Downloadable!] (restricted)
  4. 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 1325-48, December. [Downloadable!] (restricted)
  5. Zhao, Jinhua & Kling, Catherine L., 2001. "A new explanation for the WTP/WTA disparity," Economics Letters, Elsevier, vol. 73(3), pages 293-300, December. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February. [Downloadable!] (restricted)
  8. 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 554-66, September. [Downloadable!] (restricted)
  9. Randall, Alan & Stoll, John R, 1980. "Consumer's Surplus in Commodity Space," American Economic Review, American Economic Association, vol. 70(3), pages 449-55, June. [Downloadable!] (restricted)
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  1. Jay Corrigan & Catherine Kling & Jinhua Zhao, 2008. "Willingness to Pay and the Cost of Commitment: An Empirical Specification and Test," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(2), pages 285-298, June. [Downloadable!] (restricted)
  2. John A. List, 2004. "Substitutability, Experience, and the Value Disparity: Evidence from the Marketplace," Framed Field Experiments 0048, The Field Experiments Website. [Downloadable!]
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  3. Jay R. Corrigan & Catharine L. Kling & Jinhua Zhao, 2006. "The Dynamic Formation of Willingness to Pay: An Empirical Specification and Test," Working Papers 0603, Kenyon College, Department of Economics. [Downloadable!]
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