Endowment effect theory, public goods and welfare
According to endowment effect theory, the observed difference between the willingness to pay for a good and the willingness to accept retribution payments for giving up that good can be caused either by a disutility from parting or by an extra ownership utility. We analyze the welfare implications of these two alternatives with special emphasis on the case where they are good specific. Within a two-sector general-equilibrium model, we show that the ownership-utility effect may cause welfare losses: allocation inefficiencies are to be expected particularly with the provision of public goods.
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Volume (Year): 37 (2008)
Issue (Month): 5 (October)
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