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Measuring the Willingness to Pay to Avoid Guilt: Estimation Using Equilibrium and Stated Belief Models

  • Bellemare, Charles

    ()

    (Université Laval)

  • Sebald, Alexander

    ()

    (University of Copenhagen)

  • Strobel, Martin

    ()

    (Maastricht University)

We estimate structural models of guilt aversion to measure the population level of willingness to pay (WTP) to avoid feeling guilt by letting down another player. We compare estimates of WTP under the assumption that higher-order beliefs are in equilibrium (i.e. consistent with the choice distribution) with models estimated using stated beliefs which relax the equilibrium requirement. We estimate WTP in the later case by allowing stated beliefs to be correlated with guilt aversion, thus controlling for a possible source of a consensus effect. All models are estimated using data from an experiment of proposal and response conducted with a large and representative sample of the Dutch population. Our range of estimates suggests that responders are willing to pay between 0.40 and 0.80 Euro to avoid letting down proposers by 1 Euro. Furthermore, we find that WTP estimated using stated beliefs is substantially overestimated (by a factor of two) when correlation between preferences and beliefs is not controlled for. Finally, we find no evidence that WTP is significantly related to the observable socio-economic characteristics of players.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4803.

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Length: 31 pages
Date of creation: Mar 2010
Date of revision:
Publication status: published in: Journal of Applied Econometrics, 2011, 26 (3), 437 - 453
Handle: RePEc:iza:izadps:dp4803
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  1. Dirk Engelmann & Martin Strobel, 2000. "The False Consensus Effect Disappears if Representative Information and Monetary Incentives Are Given," Experimental Economics, Springer, vol. 3(3), pages 241-260, December.
  2. Jeffrey Racine, 2008. "Nonparametric econometrics: a primer (in Russian)," Quantile, Quantile, issue 4, pages 7-56, March.
  3. Charles Bellemare & Sabine Kroger, 2005. "On Representative Social Capital," Cahiers de recherche 0504, CIRPEE.
  4. Charness, Gary & Rabin, Matthew, 2004. "Expressed Preferences and Behavior in Experimental Games," Department of Economics, Working Paper Series qt37p1s4rs, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
  6. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  7. Christoph Vanberg, 2008. "Why Do People Keep Their Promises? An Experimental Test of Two Explanations -super-1," Econometrica, Econometric Society, vol. 76(6), pages 1467-1480, November.
  8. John Kagel & Katherine Wolfe, 2001. "Tests of Fairness Models Based on Equity Considerations in a Three-Person Ultimatum Game," Experimental Economics, Springer, vol. 4(3), pages 203-219, December.
  9. Ellingsen, Tore & Johannesson, Magnus & Tjøtta, Sigve & Torsvik, Gaute, 2007. "Testing Guilt Aversion," Working Papers in Economics 14/07, University of Bergen, Department of Economics.
  10. Armin Falk & Ernst Fehr & Urs Fischbacher, . "Testing Theories of Fairness - Intentions Matter," IEW - Working Papers 063, Institute for Empirical Research in Economics - University of Zurich.
  11. Pierpaolo Battigalli & Martin Dufwenberg, 2007. "Guilt in Games," American Economic Review, American Economic Association, vol. 97(2), pages 170-176, May.
  12. Muller, Werner G & Ponce de Leon, Antonio C M, 1996. "Optimal Design of an Experiment in Economics," Economic Journal, Royal Economic Society, vol. 106(434), pages 122-27, January.
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