IDEAS home Printed from https://ideas.repec.org/p/ias/cpaper/00-wp251.html
   My bibliography  Save this paper

Willingness-to-Pay, Compensating Variation, and the Cost of Commitment

Author

Abstract

The authors present a dynamic model of an agent's decision to purchase or sell a good under the following conditions: uncertainty, irreversibility, and learning over time. As the authors show, an agent's willingness-to-pay (WTP) is influenced by both the intrinsic value of the good and the commitment cost associated with delaying the decision until more information is available. Consequently, the standard Hicksian equivalence between WTP and compensating and equivalent variation no longer holds. This finding has important practical implications because it implies that observed WTP values are not always appropriate for welfare analysis.

Suggested Citation

  • Jinhua Zhao & Catherine L. Kling, 2000. "Willingness-to-Pay, Compensating Variation, and the Cost of Commitment," Center for Agricultural and Rural Development (CARD) Publications 00-wp251, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  • Handle: RePEc:ias:cpaper:00-wp251
    as

    Download full text from publisher

    File URL: https://www.card.iastate.edu/products/publications/pdf/00wp251.pdf
    File Function: Full Text
    Download Restriction: no

    File URL: https://www.card.iastate.edu/products/publications/synopsis/?p=300
    File Function: Online Synopsis
    Download Restriction: no

    Other versions of this item:

    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ias:cpaper:00-wp251. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/caiasus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.