Investigating Willingness to Pay–Willingness to Accept Asymmetry in Choice Experiments
Choice Modelling: The State-of-the-art and The State-of-practice
ISBN: 978-1-84950-772-1, eISBN: 978-1-84950-773-8
Publication date: 15 January 2010
Abstract
We investigate discrepancies between willingness to pay (WTP) and willingness to accept (WTA) in the context of a stated choice experiment. Using data on customer preferences for water services where respondents were able to both ‘sell’ and ‘buy’ the choice experiment attributes, we find evidence of non-linearity in the underlying utility function even though the range of attribute levels is relatively small. Our results reveal the presence of significant loss aversion in all the attributes, including price. We find the WTP–WTA schedule to be asymmetric around the current provision level and that the WTP–WTA ratio varies according to the particular provision change under consideration. Such reference point findings are of direct importance for practitioners and decision-makers using choice experiments for economic appraisal such as cost–benefit analysis, where failure to account for non-linearity in welfare estimates may significantly over- or under-state individual's preferences for gains and avoiding losses respectively.
Acknowledgements
Acknowledgements
The authors would like to thank two anonymous referees for their constructive comments and suggestions, as well as feedback from participants at Envecon 2009 Applied Environmental Economics Conference, the 2009 International Choice Modelling Conference and the 2009 Annual Conference of the European Association of Environmental and Resource Economists (EAERE). Support from United Utilities Water is gratefully acknowledged. The opinions expressed and any remaining errors are those of the authors only.
Citation
Lanz, B., Provins, A., Bateman, I.J., Scarpa, R., Willis, K. and Ozdemiroglu, E. (2010), "Investigating Willingness to Pay–Willingness to Accept Asymmetry in Choice Experiments", Hess, S. and Daly, A. (Ed.) Choice Modelling: The State-of-the-art and The State-of-practice, Emerald Group Publishing Limited, Leeds, pp. 517-541. https://doi.org/10.1108/9781849507738-024
Publisher
:Emerald Group Publishing Limited
Copyright © 2010 Emerald Group Publishing Limited