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Reference Dependence And Other Behavioral Findings: The Likelihood Of Serious Evaluation And Policy Biases

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  • JACK L. KNETSCH

    (Department of Economics, Simon Fraser University, Burnaby, British Columbia, Canada V5A 1S6, Canada)

Abstract

Standard economic theory correctly prescribes willingnes-to-pay (WTP) to most accurately assess the welfare change of gains and WTA to measure the welfare change of losses, and, in recognition of reference dependence, reductions of losses. However, its additional assumption of near equivalence between the measures, used to justify the current practice of using WTP for essentially all analyses, has been contradicted by numerous empirical tests. For many areas, and especially environmental quality and health and safety, this institutionally encouraged continuing reliance on presumption over evidence likely leads to serious bias in benefit-cost and related analyses and distortions in policy guidance.

Suggested Citation

  • Jack L. Knetsch, 2016. "Reference Dependence And Other Behavioral Findings: The Likelihood Of Serious Evaluation And Policy Biases," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(03), pages 1-11, June.
    • Handle: RePEc:wsi:serxxx:v:61:y:2016:i:03:n:s0217590816400142
    DOI: 10.1142/S0217590816400142
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    References listed on IDEAS

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