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The Effect of Power Outages and Cheap Talk on Willingness to Pay to Reduce Outages

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Author Info
Carlsson, Fredrik () (University of Gothenburg)
Martinsson, Peter () (University of Gothenburg)
Akay, Alpaslan () (IZA)

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Abstract

Using an open-ended contingent valuation survey, we analyze how (i) experience of a power outage due to one of the worst storms ever to hit Sweden and (ii) a cheap talk script affect respondents' WTP to avoid power outages. Experience significantly increases and a cheap talk script decreases the proportion of respondents with zero WTP. There is no significant effect in either case on stated WTP conditional on a positive WTP. The paper concludes with a discussion on the use of valuation studies shortly after the occurrence of an undesirable event.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4307.

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Length: 28 pages
Date of creation: Jul 2009
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Handle: RePEc:iza:izadps:dp4307

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Related research
Keywords: contingent valuation; cheap talk; experience; power outages;

Other versions of this item:

Find related papers by JEL classification:
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply

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References listed on IDEAS
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  1. Whitehead John C. & Blomquist Glenn C. & Hoban Thomas J. & Clifford William B., 1995. "Assessing the Validity and Reliability of Contingent Values: A Comparison of On-Site Users, Off-Site Users, and Non-users," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 238-251, September. [Downloadable!] (restricted)
  2. Carlsson, Fredrik & Johansson-Stenman, Olof, 2000. "Willingness to Pay for Improved Air Quality in Sweden," Applied Economics, Taylor and Francis Journals, vol. 32(6), pages 661-69, May. [Downloadable!] (restricted)
  3. Kahneman, Daniel & Ritov, Ilana & Schkade, David A, 1999. "Economic Preferences or Attitude Expressions?: An Analysis of Dollar Responses to Public Issues," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 203-35, December. [Downloadable!] (restricted)
  4. Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-87, May.
  5. Klaus Moeltner & David F. Layton, 2002. "A Censored Random Coefficients Model For Pooled Survey Data With Application To The Estimation Of Power Outage Costs," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 552-561, August. [Downloadable!] (restricted)
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  6. Aadland, David & Caplan, Arthur J., 2006. "Cheap talk reconsidered: New evidence from CVM," Journal of Economic Behavior & Organization, Elsevier, vol. 60(4), pages 562-578, August. [Downloadable!] (restricted)
    Other versions:
  7. Cameron, Trudy Ann & Englin, Jeffrey, 1997. "Respondent Experience and Contingent Valuation of Environmental Goods," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 296-313, July. [Downloadable!] (restricted)
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  8. Brown, Thomas C. & Ajzen, Icek & Hrubes, Daniel, 2003. "Further tests of entreaties to avoid hypothetical bias in referendum contingent valuation," Journal of Environmental Economics and Management, Elsevier, vol. 46(2), pages 353-361, September. [Downloadable!] (restricted)
  9. Bulte, Erwin & Gerking, Shelby & List, John A. & de Zeeuw, Aart, 2005. "The effect of varying the causes of environmental problems on stated WTP values: evidence from a field study," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 330-342, March. [Downloadable!] (restricted)
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  10. Ronald G. Cummings & Laura O. Taylor, 1999. "Unbiased Value Estimates for Environmental Goods: A Cheap Talk Design for the Contingent Valuation Method," American Economic Review, American Economic Association, vol. 89(3), pages 649-665, June. [Downloadable!] (restricted)
  11. John List & Craig Gallet, 2001. "What Experimental Protocol Influence Disparities Between Actual and Hypothetical Stated Values?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 20(3), pages 241-254, November. [Downloadable!] (restricted)
  12. Kahneman, Daniel & Wakker, Peter P & Sarin, Rakesh, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 375-405, May.
  13. Ajzen, Icek & Brown, Thomas C. & Rosenthal, Lori H., 1996. "Information Bias in Contingent Valuation: Effects of Personal Relevance, Quality of Information, and Motivational Orientation," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 43-57, January. [Downloadable!] (restricted)
  14. Horowitz, John K. & McConnell, Kenneth E., 2002. "A Review of WTA/WTP Studies," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 426-447, November. [Downloadable!] (restricted)
  15. Bengt Kriström, 1993. "Comparing continuous and discrete contingent valuation questions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(1), pages 63-71, February. [Downloadable!] (restricted)
  16. Fredrik Carlsson & Peter Martinsson, 2007. "Willingness to Pay among Swedish Households to Avoid Power Outages: A Random Parameter Tobit Model Approach," The Energy Journal, International Association for Energy Economics, vol. 28(1), pages 75-90.
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  17. John A. List, 2001. "Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards," American Economic Review, American Economic Association, vol. 91(5), pages 1498-1507, December. [Downloadable!] (restricted)
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