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Willingness to pay and size of health benefit: an integrated model to test for ‘sensitivity to scale’

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  • Raymond Y.T. Yeung
  • Richard D. Smith
  • Sarah M. McGhee

Abstract

A key theoretical prediction concerning willingness to pay is that it is positively correlated with benefit size and is assessed by testing the ‘sensitivity to scale (scope)’. ‘External’ (between‐sample) sensitivity tests are usually regarded as less powerful than ‘internal’ (within‐subject) tests. However, the latter may suffer from ‘anchoring’ effects. This paper studies the statistical power of these tests by questioning the distributional assumption of empirical data. We present an integrated model to capture both internal and external variations, while controlling for sample heterogeneity, applied to data from a survey estimating the value of reducing symptom‐days. Results indicate that once data is properly transformed, WTP becomes ‘scale sensitive’ and consistent with diminishing marginal utility theory. Copyright © 2003 John Wiley & Sons, Ltd.

Suggested Citation

  • Raymond Y.T. Yeung & Richard D. Smith & Sarah M. McGhee, 2003. "Willingness to pay and size of health benefit: an integrated model to test for ‘sensitivity to scale’," Health Economics, John Wiley & Sons, Ltd., vol. 12(9), pages 791-796, September.
    • Handle: RePEc:wly:hlthec:v:12:y:2003:i:9:p:791-796
    DOI: 10.1002/hec.786
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    References listed on IDEAS

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    2. Zoë Philips & David K. Whynes & Mark Avis, 2006. "Testing the construct validity of willingness to pay valuations using objective information about risk and health benefit," Health Economics, John Wiley & Sons, Ltd., vol. 15(2), pages 195-204, February.
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    4. D. Gyrd‐Hansen & T. Kjær & J. S. Nielsen, 2012. "Scope insensitivity in contingent valuation studies of health care services: should we ask twice?," Health Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 101-112, February.
    5. Bobinac, Ana & van Exel, N. Job A. & Rutten, Frans F.H. & Brouwer, Werner B.F., 2012. "GET MORE, PAY MORE? An elaborate test of construct validity of willingness to pay per QALY estimates obtained through contingent valuation," Journal of Health Economics, Elsevier, vol. 31(1), pages 158-168.
    6. Mihic, Marko M. & Todorovic, Marija Lj. & Obradovic, Vladimir Lj., 2014. "Economic analysis of social services for the elderly in Serbia: Two sides of the same coin," Evaluation and Program Planning, Elsevier, vol. 45(C), pages 9-21.
    7. Mark Harrison & Dan Rigby & Caroline Vass & Terry Flynn & Jordan Louviere & Katherine Payne, 2014. "Risk as an Attribute in Discrete Choice Experiments: A Systematic Review of the Literature," The Patient: Patient-Centered Outcomes Research, Springer;International Academy of Health Preference Research, vol. 7(2), pages 151-170, June.
    8. Mataria, Awad & Donaldson, Cam & Luchini, Stephane & Moatti, Jean-Paul, 2004. "A stated preference approach to assessing health care-quality improvements in Palestine: from theoretical validity to policy implications," Journal of Health Economics, Elsevier, vol. 23(6), pages 1285-1311, November.

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