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Estimating households' willingness to pay

  • Rachel Griffith

    ()

    (Institute for Fiscal Studies and IFS and Manchester)

  • Lars Nesheim

    ()

    (Institute for Fiscal Studies and cemmap and UCL)

The recent literature has brought together the characteristics model of utility and classic revealed preference arguments to learn about consumers' willingness to pay. We incorporate market pricing equilibrium conditions into this setting. This allows us to use observed purchase prices and quantities on a large basket of products to learn about individual household's willingness to pay for characteristics, while maintaining a high degree of flexibility and also avoiding the biases that arise from inappropriate aggregation. We illustrate the approach using scanner data on food purchases to estimate bounds on willingness to pay for the organic characteristic. We combine these estimates with information on households' stated preferences and beliefs to show that on average quality is the most important factor affecting bounds on household willingness to pay for organic, with health concerns coming second, and environmental concerns lagging far behind.

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File URL: http://cemmap.ifs.org.uk/wps/cwp2410.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP24/10.

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Date of creation: Aug 2010
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Handle: RePEc:ifs:cemmap:24/10
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  1. Richard Blundell & Martin Browning & Ian Crawford, 1998. "Nonparametric Engel Curves and Revealed Preference," Discussion Papers 99-07, University of Copenhagen. Department of Economics.
  2. James J. Heckman & Rosa L. Matzkin & Lars Nesheim, 2010. "Nonparametric Identification and Estimation of Nonadditive Hedonic Models," Econometrica, Econometric Society, vol. 78(5), pages 1569-1591, 09.
  3. Beckert, Walter, 2010. "A micro-econometric approach to geographic market definition in local retail markets: Demand side considerations," Economics Discussion Papers 2010-16, Kiel Institute for the World Economy.
  4. Pierre-Andre Chiappori & Robert McCann & Lars Nesheim, 2007. "Hedonic price equilibria, stable matching, and optimal transport: equivalence, topology, and uniqueness," CeMMAP working papers CWP23/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  5. Martin Browning & Laura Blow, 2006. "Revealed Preference Analysis of Characteristics Models," Economics Series Working Papers 282, University of Oxford, Department of Economics.
  6. Rachel Griffith & Ephraim Leibtag & Andrew Leicester & Aviv Nevo, 2009. "Consumer Shopping Behavior: How Much Do Consumers Save?," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 99-120, Spring.
  7. Deaton, Angus, 1987. "Estimation of own- and cross-price elasticities from household survey data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 7-30.
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