Tongzhe Li, Laura A. Paul, Kent D. Messer, and Harry M. Kaiser
Abstract:
Willingness to pay (WTP) and willingness to accept (WTA) measures are commonly used for economic analysis with wide-ranging implications for consumer demand, social welfare, marketing, policy, and economic theory. Economic studies have often observed an inconsistency between WTP and WTA—where elicited WTP is generally lower than WTA relative to what behavioral models would predict—but explanation of the WTP-WTA gap remains unresolved. Notably, the gap is largest for things that have large and relatively unknown value, such as the value of biodiversity in the Brazilian rainforest, in contrast to something that is smaller and has a relatively well-known value – such as a $5 bill.
Our paper informs situations where food choices might be best framed with either WTP or WTA using a framed field experiment with 292 adult subjects who participated in either a conventional or a reverse Becker-DeGroot-Marschak (BDM) auction designed to elicit consumer WTP (product purchasing) or WTA (task performing) for yogurt smoothies of various known production dates. Two important findings arise from this design. First, production date and labeling have consistent marginal effects on valuation regardless of the auction format, which suggests that either WTP or WTA estimates in the experimental auction literature can likely result in consistent policy implications. Second, there is a significantly different proportion of zero bids at each production date, which signals the existence of censoring. In a situation where some consumers might have a significant negative response to a product, a zero WTP value is not sufficient data and WTA should be collected.
Laura A. Paul 