A Dynamic Explanation of the Willingness to Pay and Willingness to Accept Disparity
Evidence from laboratory experiments suggests that important disparities exist between willingness to pay (WTP) and compensation demanded for the same good. This study advances, and experimentally tests, a new explanation of the WTP/WTA disparity--a dynamic theory based on the presence of commitment costs. We find that the commitment cost theory combined with a simple behavioral anomaly is able to lend insights into the causes and severity of the WTA/WTP disparity. Further, we find that market experience attenuates the behavioral anomaly, consistent with the notion that no value disparity exists for agents with sufficient market experience.
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|Date of creation:||17 Aug 2011|
|Date of revision:|
|Publication status:||Forthcoming in Economic Inquiry|
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- Shogren, Jason F. & Margolis, Michael & Koo, Cannon & List, John A., 2001. "A random nth-price auction," Journal of Economic Behavior & Organization, Elsevier, vol. 46(4), pages 409-421, December.
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- Jinhua Zhao & Catherine L. Kling, 2004.
"Willingness to Pay, Compensating Variation, and the Cost of Commitment,"
Western Economic Association International, vol. 42(3), pages 503-517, July.
- 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.
- Zhao, Jinhua & Kling, Catherine L., 2004. "Willingness-To-Pay, Compensating Variation, and the Cost of Commitment," Staff General Research Papers 1875, Iowa State University, Department of Economics.
- Zhao, Jinhua & Kling, Catherine L., 2001. "A new explanation for the WTP/WTA disparity," Economics Letters, Elsevier, vol. 73(3), pages 293-300, December.
- James Konow, 2000. "Fair Shares: Accountability and Cognitive Dissonance in Allocation Decisions," American Economic Review, American Economic Association, vol. 90(4), pages 1072-1091, September.
- Knez, Peter & Smith, Vernon L & Williams, Arlington W, 1985. "Individual Rationality, Market Rationality, and Value Estimation," American Economic Review, American Economic Association, vol. 75(2), pages 397-402, May.
- Brookshire, David S & Coursey, Don L, 1987. "Measuring the Value of a Public Good: An Empirical Comparison of Elicitation Procedures," American Economic Review, American Economic Association, vol. 77(4), pages 554-66, September.
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