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Using Bid Design to Measure the Boundaries of WTP

Author

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  • Rollins, Kimberly S.
  • Rodriguez, Lucrecia
  • Price, Michael

Abstract

We examine the extent to which bid design provides an informative anchor that influences the context in which individuals evaluate willingness to pay questions. We postulate that agents who are uncertain over possible states of nature that may arise when consuming a good use bid design as a means to resolve such uncertainty. Furthermore, we hypothesize that the impact of bid design on estimated WTP is less pronounced for experienced agents that have observed more draws from nature. We use three measure of bid design to evaluate our conjectures; (i) the mean of bid amounts, (ii) the absolute value of the difference between bid amounts, and (iii) the ratio of the mean to the spread. We interact proxies for individual experience with our measure of bid design to evaluate if such characteristics attenuate the impact of bid design on WTP estimates. We find the likelihood an individual says "Yes" to a given bid systematically varies with measures of bid design. This suggests that bid design provides an informative anchor and can be used to identify probabilistic boundaries for WTP.

Suggested Citation

  • Rollins, Kimberly S. & Rodriguez, Lucrecia & Price, Michael, 2007. "Using Bid Design to Measure the Boundaries of WTP," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9922, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea07:9922
    DOI: 10.22004/ag.econ.9922
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    Keywords

    Demand and Price Analysis;

    Statistics

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