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LOSS AVERSION AND WILLINGNESS TO PAY FOR NEW PRODUCTS

A Banerji and Jeevant Rampal
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A Banerji and Jeevant Rampal: Centre for Development Economics, Delhi School of Economics, University of Delhi, India

Authors registered in the RePEc Author Service: Jeevant Rampal

No 249, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: This paper reports and models the discrepancy between the full bidding and endow and upgrade findings from a willingness-to-pay (WTP) elicitation Becker-Degroot-Marschak (BDM) experiment for an improved food, conducted in rural India. We found that the distribution of the WTP for exchanging 1kg local pearl millet (LPM) for 1 kg of biofortified high-iron pearl millet (HIPM) first-order stochastically dominated the distribution of the difference between the WTPs for 1kg HIPM and 1kg LPM. Thus the data (i) rejects preferences that are standard or have status quo reference points, in favor of an expectations-based reference dependence model of loss aversion for the new product, and (ii) is used to identify and estimate the loss aversion parameter and latent consumer valuations for HIPM in the consumer model. These point to a significant downward bias in conventional WTP estimates Of HIPM using the BDM procedure, suggesting caution when one is using standard incentive compatible mechanisms for value elicitation.Classification-JEL:

Pages: 27 pages
Date: 2015-11
New Economics Papers: this item is included in nep-cbe and nep-upt
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Working Paper: Loss Aversion and Willingness to Pay for New Products (2015) Downloads
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