Stated Willingness to Pay for Public Goods: A Psychological Perspective

Abstract

In the contingent valuation method for the valuation of public goods, survey respondents are asked to indicate the amount they are willing to pay (WTP) for the provision of a good. We contrast economic and psychological analyses of WTP and describe a study in which respondents indicated their WTP to prevent or to remedy threats to public health or to the environment, attributed either to human or to natural causes. WTP was significantly higher when the cause of a harm was human, though the effect was not large. The means of WTP for 16 issues were highly correlated with the means of other measures of attitude, including a simple rating of the importance of the threat. The responses are better described as expressions of attitudes than as indications of economic value, contrary to the assumptions of the contingent valuation method.

Is WTP an attitudinal measure? Empirical analysis of the psychological explanation for contingent values

“…The more positive an attitude towards an environmental change the greater should be the stated WTP, although Kahneman, Ritov and Schkade (1999) also argue that the WTP monetary scale is a psychometrically inefficient measure of attitudes. If the attitudinal hypothesis is empirically valid, then this would support Kahneman and colleagues claim that CVM should be replaced by psychometrically superior attitudinal scales (Kahneman & Ritov, 1994;Kahneman, et al, 1993).…”

“…by Kahneman and colleagues (Kahneman & Ritov 1994;Kahneman, et al 1993;Kahneman, Ritov & Schkade, 1999). The purchase model was originally developed to describe the motivation to acquire personal benefits, but can be taken more generally as a characterisation of an economic approach where consequences for an individual or household causally influence evaluations of an act or behaviour.…”

“…The contribution model portrays positive WTP bids under the CVM as being motivated by the perception that a positive environmental proposal forms a good cause that needs supporting (Kahneman & Ritov, 1994). Respondents are deemed to be fully aware that any monetary amount that they personally offer will be insufficient to realise the type of societal projects to which CVM is applied (Kahneman & Ritov, 1994;Kahneman, et al, 1993). The contribution model posits that the spirit of donation, rather than benefit acquisition, is the primary motivation underlying a positive WTP response.…”

When Performance Trumps Gender Bias: Joint Versus Separate Evaluation

“…In a two-party negotiation, they had study participants evaluate two possible negotiation outcomes-an even split of a smaller pie and a disadvantageous uneven split of a larger pie that still made both parties better off-either one at a time or jointly When presented separately, most people preferred the equal split; when presented jointly, most preferred the money-maximizing alternative. Later studies on joint versus separate preference reversals found that brand name was more important than product features and price when people evaluated products separately rather than jointly (Nowlis and Simonson 1997); people were willing to pay more to protect animal species when evaluating separately and to invest in human health when evaluating the two causes jointly (Kahneman et al 1993); and people were willing to pay more for a small portion of ice cream in a tiny, over-filled container when evaluating separately but for a large portion of ice cream in an under-filled huge container when evaluating the two serving options jointly (Hsee et al 1999). …”

Measuring What People Value: A Comparison of “Attitude” and “Preference” Surveys

“…There has been a long debate on the relevance of psychological models in contrast to economic models of how people make decisions, beginning with early work on ''bounded rationality'' (Simon 1955), to the development of ''prospect theory'' (Kahneman and Tversky 1979), to recent work on the implications of this debate for health policy (Rice 1997;Rice 1998). For example, work by Kahneman et al has argued that economic ''preferences'' as typically measured are simply expressions of attitudes measured on a dollar scale, rather than true preferences as dictated by economic theory (Kahneman et al 1993;Kahneman, Ritov, and Schkade 1999). The implications of the outcome of this debate for health services researchers are substantial, since many of the approaches used to develop and evaluate health policies are based on the fundamental premise that economic preferences are a valid measure of social welfare (Rice 1997;Rice 1998).…”