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Two explanations to the willingness to accept and willingness to pay gap plus an alternative

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  • Beja Jr, Edsel

Abstract

The gap between the willingness to accept and willingness to pay is the outcome of incomplete valuation. The problem therefore is more about completing the valuation procedure. The first part of the solution involves two items: one is the inclusion of the direct and indirect income effects and the other is the inclusion of the substitution effect between the numeraire good (i.e., income) and the good under consideration. The second part of the solution concerns the respective hedonic content of income, the good, and the setting. These two explanations point to a third solution that puts the setting together with the income and substitution effects.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36239.

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Date of creation: 25 Jan 2012
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Handle: RePEc:pra:mprapa:36239

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Keywords: Willingness to accept; willingness to pay; subjective well-being;

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  1. Shogren, Jason F. & Seung Y. Shin & Dermot J. Hayes & James B. Kliebenstein, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," American Economic Review, American Economic Association, vol. 84(1), pages 255-70, March.
  2. Andrew E. Clark & Yannis Georgellis, 2002. "Unemployment Alters the Set-Point for Life Satisfaction," Economics and Finance Discussion Papers 02-16, Economics and Finance Section, School of Social Sciences, Brunel University.
  3. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2009. "The Life Satisfaction Approach to Environmental Valuation," Working papers 2009/08, Faculty of Business and Economics - University of Basel.
  4. Heinz Welsch & Jan Kühling, 2009. "Using Happiness Data For Environmental Valuation: Issues And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 23(2), pages 385-406, 04.
  5. Knetsch, Jack L., 1990. "Environmental policy implications of disparities between willingness to pay and compensation demanded measures of values," Journal of Environmental Economics and Management, Elsevier, vol. 18(3), pages 227-237, May.
  6. Kahneman, Daniel & Knetsch, Jack L., 1992. "Valuing public goods: The purchase of moral satisfaction," Journal of Environmental Economics and Management, Elsevier, vol. 22(1), pages 57-70, January.
  7. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2008. "Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis," SOEPpapers on Multidisciplinary Panel Data Research 84, DIW Berlin, The German Socio-Economic Panel (SOEP).
  8. Welsch, Heinz, 2002. "Preferences over Prosperity and Pollution: Environmental Valuation Based on Happiness Surveys," Kyklos, Wiley Blackwell, vol. 55(4), pages 473-94.
  9. Knetsch, Jack L. & Wong, Wei-Kang, 2009. "The endowment effect and the reference state: Evidence and manipulations," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 407-413, August.
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