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Endowment effect theory, prediction bias and publicly provided goods: an experimental study

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  • Ivo Bischoff

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Abstract

Many studies report on a systematic disparity between the willingness to pay for a certain good (WTP) and the willingness to accept retribution payments in exchange for giving up this good (WTA). Thaler (1980) employs prospect theory to explain this disparity. The literature contains two different interpretations of his endowment effect theory. Accordingly, the disparity is caused either by the disutility from parting with one's endowment and/or by an extra utility from ownership which is not anticipated by individuals who are not endowed with the good. So far, the empirical evidence on the applicability of endowment effect theory is limited to private goods. The current paper reports on an experiment which finds a significant ownership utility effect for a publicly provided good. This result indicates that prospect theory applies to publicly provided goods even though consumers do not have exclusive property rights.
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Suggested Citation

  • Ivo Bischoff, 2008. "Endowment effect theory, prediction bias and publicly provided goods: an experimental study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(3), pages 283-296, March.
  • Handle: RePEc:kap:enreec:v:39:y:2008:i:3:p:283-296
    DOI: 10.1007/s10640-007-9126-3
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    References listed on IDEAS

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    Cited by:

    1. Bischoff, Ivo & Meckl, Jürgen, 2008. "Endowment effect theory, public goods and welfare," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1768-1774, October.
    2. Ivo Bischoff, 2008. "Endowment effect theory, prediction bias and publicly provided goods: an experimental study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(3), pages 283-296, March.
    3. J. DeShazo & Trudy Cameron & Manrique Saenz, 2009. "The Effect of Consumers’ Real-World Choice Sets on Inferences from Stated Preference Surveys," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 42(3), pages 319-343, March.
    4. Adriana Zapata Giraldo, 2016. "Aspectos Contemporáneos De La Negociación Nacional E Internacional," Books, Universidad Externado de Colombia, Facultad de Derecho, number 853.

    More about this item

    Keywords

    Endowment effect; Experiment; Loss aversion; Publicly Provided goods; H40; H43; Q51; C92;

    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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