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Proportionality of Willingness to Pay to Small Changes in Risk: The Impact of Attitudinal Factors in Scope Tests

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  • Andrea Leiter

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  • Gerald Pruckner

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Abstract

Sensitivity (proportionality) of willingness to pay to (small) risk changes is often used as a criterion to test for valid measures of economic preferences. In a contingent valuation (CV) study conducted in Austria, 1,005 respondents were asked their willingness to pay (WTP) for preventing an increase in the risk of being killed in an avalanche of 1/42,500 and 3/42,500 respectively. WTP for the higher variation in risk is significantly greater than WTP for the lower risk change. We find evidence that those respondents who have had personal experience of avalanches in recent years combine the information about future risk increase - as provided in the survey - with the observed number of fatal avalanche accidents in the past. Proportionality of WTP holds if such prior experience is taken into account and if attitudinal factors in scope tests are controlled for.
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Suggested Citation

  • Andrea Leiter & Gerald Pruckner, 2009. "Proportionality of Willingness to Pay to Small Changes in Risk: The Impact of Attitudinal Factors in Scope Tests," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 42(2), pages 169-186, February.
  • Handle: RePEc:kap:enreec:v:42:y:2009:i:2:p:169-186
    DOI: 10.1007/s10640-008-9214-z
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    Cited by:

    1. Octavio Fernández Amador & Josef Baumgartner & Jesús Crespo Cuaresma, "undated". "Milking the Prices: The Role of Asymmetries in the Price Transmission Mechanism for Milk Products in Austria," WIFO Working Papers 378, WIFO.
    2. John C. Whitehead & O. Ashton Morgan & William L. Huth & Gregory S. Martin & Richard Sjolander, 2012. "Willingness-to-Pay for Oyster Consumption Mortality Risk Reductions," Working Papers 12-07, Department of Economics, Appalachian State University.
    3. Martin Gaechter & Engelbert Theurl, 2010. "Health Status Convergence at the Local Level: Empirical Evidence from Austria," Working Papers 2010-23, Faculty of Economics and Statistics, University of Innsbruck, revised Mar 2011.
    4. Wolfgang Brunauer & Stefan Lang & Nikolaus Umlauf, 2010. "Modeling House Prices using Multilevel Structured Additive Regression," Working Papers 2010-19, Faculty of Economics and Statistics, University of Innsbruck.
    5. Harald Oberhofer, 2012. "Firm Growth, European Industry Dynamics and Domestic Business Cycles," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(3), pages 316-337, July.
    6. Kimberly Rollins & Mimako Kobayashi, 2010. "Embedding a Field Experiment in Contingent Valuation to Measure Context-Dependent Risk Preferences: Does Prospect Theory Explain Individual Responses for Wildfire Risk?," Working Papers 10-003, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.
    7. Olschewski, Roland & Bebi, Peter & Teich, Michaela & Wissen Hayek, Ulrike & Grêt-Regamey, Adrienne, 2012. "Avalanche protection by forests — A choice experiment in the Swiss Alps," Forest Policy and Economics, Elsevier, vol. 17(C), pages 19-24.
    8. Rollins, Kimberly S. & Kobayashi, Mimako, 2010. "Embedding a Field Experiment in Contingent Valuation to Measure Context-Dependent Risk Preferences: An Application to Wildfire Risk," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61870, Agricultural and Applied Economics Association.
    9. Parsons, George R. & Myers, Kelley, 2016. "Fat tails and truncated bids in contingent valuation: An application to an endangered shorebird species," Ecological Economics, Elsevier, vol. 129(C), pages 210-219.
    10. Christoph Rheinberger, 2011. "A Mixed Logit Approach to Study Preferences for Safety on Alpine Roads," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(1), pages 121-146, May.
    11. Marija Bockarjova & Piet Rietveld & Erik T. Verhoef, 2012. "Scale, Scope and Cognition: Context Analysis of Multiple Stated Choice Experiments on the Values of Life and Limb," Tinbergen Institute Discussion Papers 12-046/3, Tinbergen Institute.
    12. Oerlemans, Leon A.G. & Chan, Kai-Ying & Volschenk, Jako, 2016. "Willingness to pay for green electricity: A review of the contingent valuation literature and its sources of error," Renewable and Sustainable Energy Reviews, Elsevier, vol. 66(C), pages 875-885.

    More about this item

    Keywords

    Contingent valuation; Willingness to pay; Scope test; Sensitivity of WTP; D81; J17; Q54;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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