Ben Franklin’s Whistle, Cost Expectations, and the Choice of Valuation Format

Contingent valuation surveys have used a variety of formats for the valuation question, including open-ended (OE) and single-bounded closed-ended (CE) elicitation. The OE format assesses maximum WTP directly, whereas the CE format assesses it indirectly. When the two formats have been compared, responses have often been different: the CE format often generated a larger estimate of WTP than the OE format. That finding has spawned a large literature in economics and marketing. We propose an explanation for the difference in OE and CE responses rooted in the psychology of questionnaire design, which focuses on a phenomenon pointed out long ago by Benjamin Franklin for a private good that could also apply to a public good. The hypothesis is that respondents are averse to paying more for something than they think it should cost them. To test this hypothesis, an experiment embedded in a representative sample survey measured respondents’ perceptions of the cost of providing a public good, as well as their valuations using an OE or CE valuation format. Findings are consistent with Ben Franklin-like aversion to overpaying in the OE format, which leads OE responses to understate true willingness to pay. The CE format yielded more valid measurements of economic value. This paper introduces a new non-parametric approach to the estimation of WTP as a function of covariates using CE data.