Willingness to Pay and the Cost of Commitment: An Empirical Specification and Test

Jay Corrigan (), Catherine Kling and Jinhua Zhao

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: In a static setting, willingness to pay for an environmental improvement is equal to compensating variation. In a dynamic setting, however, willingness to pay may also contain a commitment cost. In this paper we incorporate the dynamic nature of the value formation process into a stated preference study designed to test whether there is an important dynamic component (commitment cost) in stated preference values. The results clearly indicate that stated preference values can contain commitment costs and that these can be quite large: respondents offered the opportunity to delay their purchasing decisions until more information became available were willing to pay significantly less for improved water quality than those facing a now-or-never decision. These results have important consequences for the design and interpretation of stated preference data.

Date: 2008-06-01
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Journal Article: Willingness to Pay and the Cost of Commitment: An Empirical Specification and Test (2008)
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