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Despairing Over Disparities: Explaining the Difference Between Willingness to Pay and Willingness to Accept

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  • Carol Mansfield

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Abstract

This paper examines the three major explanations for the disparity between willingness-to-pay (WTP) and willingness-to-accept (WTA) observed in contingent value surveys and laboratory experiments: a belief that the results must be biased in some fashion, Hanemann's (1991) substitutes hypothesis, and the loss aversion model proposed by Tversky and Kahneman (1991). Starting from the assumption that individuals make utility maximizing choices, we develop structural equations that yield parametric tests of the hypotheses within a single, non-experimental framework. The approach is flexible enough to incorporate a variety of functional form and distributional assumptions and can be applied to either data from either open-ended bids or dichotomous choice questions. The usefulness of the approach is demonstrated using data from a survey that asked both WTP and WTA questions. The results provide weak support for loss aversion. Copyright Kluwer Academic Publishers 1999

Suggested Citation

  • Carol Mansfield, 1999. "Despairing Over Disparities: Explaining the Difference Between Willingness to Pay and Willingness to Accept," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 13(2), pages 219-234, March.
  • Handle: RePEc:kap:enreec:v:13:y:1999:i:2:p:219-234
    DOI: 10.1023/A:1008246228773
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    References listed on IDEAS

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    10. 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 1325-1348, December.
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    12. Wiktor L. Adamowicz & Vinay Bhardwaj & Bruce Macnab, 1993. "Experiments on the Difference between Willingness to Pay and Willingness to Accept," Land Economics, University of Wisconsin Press, vol. 69(4), pages 416-427.
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    Cited by:

    1. Jay Corrigan & Catherine Kling & Jinhua Zhao, 2008. "Willingness to Pay and the Cost of Commitment: An Empirical Specification and Test," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 285-298, June.
    2. Corrigan, Jay R. & Kling, Catherine L. & Zhao, Jinhua, 2003. "Dynamic Willingness to Pay: An Empirical Specification and Test," Staff General Research Papers Archive 10220, Iowa State University, Department of Economics.
    3. Jay Corrigan, 2001. "Effect of Future Availability of Information on Willingness to Pay, The," Center for Agricultural and Rural Development (CARD) Publications 01-wp290, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    4. 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.
    5. Gautam, Tej K. & Paudel, Krishna P. & Guidry, Kurt M., 2017. "Willingness To Pay For Irrigation Water In Louisiana," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252821, Southern Agricultural Economics Association.

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